Loading the player...

What is a 'Trade'

Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. The most common medium of exchange for these transactions is money, but trade may also be executed with the exchange of goods or services between both parties, referred to as a barter, or payment with virtual currency, the most popular of which is bitcoin. In financial markets, trading refers to the buying and selling of securities, such as the purchase of stock on the floor of the New York Stock Exchange (NYSE).

BREAKING DOWN 'Trade'

Trade refers to transactions ranging in complexity from the exchange of baseball cards between collectors to multinational policies setting protocols for imports and exports between countries. Regardless of the complexity of the transaction, trading is facilitated through three primary types of exchanges. Trades are executed with the payment of sovereign currency, the exchange of goods and services, or payment with a virtual currency.

Currency as a Medium of Exchange

Money, which also functions as a unit of account and a store of value, is the most common medium of exchange, providing a variety of methods for fund transfers between buyers and sellers, including cash, ACH transfers, credit cards and wired funds. Money’s attribute as a store of value also provides assurance that funds received by sellers as payment for goods or services can be used to make purchases of equivalent value in the future.

Barter Transactions

Cashless trades involving the exchange of goods or services between parties are referred to as barter transactions. While barter is often associated with primitive or undeveloped societies, these transactions are also used by large corporations and individuals as a means of gaining goods in exchange for excess, underutilized or unwanted assets. For example, in the 1970s, PepsiCo Inc. set up a barter agreement with the Russian government to trade cola syrup for Stolichnaya vodka. In 1990, the deal was expanded to $3 billion dollars and included 10 Russian-built ships, which PepsiCo leased or sold in the years following the agreement.

Virtual Currencies

As the newest medium of exchange, virtual currencies do not expose holders to foreign exchange risks, provide anonymity between trading partners if desired and avoid the often-significant processing fee for credit cards. The most popular virtual currency is bitcoin, which was introduced in 2009. Bitcoins are held in virtual wallets and can be used with a growing number of merchants, including WordPress.com and Overstock.com. The virtual currency is also popular with small businesses, due in part to the lack of processing fees.

RELATED TERMS
  1. Barter

    Barter, or bartering, is the act of trading a good or service ...
  2. Local Exchange Trading Systems

    A locally organized economic organization that allows members ...
  3. Bitcoin Exchange

    A bitcoin exchange is a digital marketplace where traders can ...
  4. Virtual Currency

    Virtual currency is a form of digital currency that represents ...
  5. Peer-To-Peer (Virtual Currency)

    The exchange or sharing of information, data, or assets between ...
  6. Sale

    1) In general, a transaction between two parties where the buyer ...
Related Articles
  1. Taxes

    The Tax Implications Of Bartering

    Here are some tax consequences for bartering that you need to know, as well as how to report them.
  2. Tech

    Do Cryptocurrencies Have Intrinsic Value? It Depends

    Cryptocurrencies matter in the long run, whether as a store of value or a medium of exchange.
  3. Tech

    Japan May Abolish the 8% Sales Tax on Bitcoin

    Japan is finally looking to drop tax levied on the virtual currency, which would trim the costs for buyers as well as relieve exchanges from the administrative burden related to taxation.
  4. Managing Wealth

    Top Tips For Exchanging Money

    Take these tips to heart to avoid wasting money when you exchange currencies.
  5. Investing

    Who Owns The Stock Exchanges?

    As M&A heats up among the exchanges, here's how the market currently looks.
  6. Tech

    Bitcoin Liquidity: What The Stakes Are

    Liquid markets are easy to exit; illiquid markets can put traders in a tough spot. Here are the main factors affecting the liquidity of Bitcoins.
  7. Tech

    Countries Where Bitcoin Is Legal & Illegal (DISH, OTSK)

    Although bitcoin has been in existence for five years, most countries still do not have consistent laws regulating the cryptocurrency. However, a few countries have banned bitcoin altogether.
  8. Tech

    The Strange New World of the Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  9. Tech

    Are There Taxes On Bitcoins?

    Here is a short guide to the tax implications when using or investing in bitcoins in the US.
RELATED FAQS
  1. What is the difference between barter and currency systems?

    Learn the difference between barter and currency systems in the trade of goods and services, and why currency is preferred ... Read Answer >>
  2. What does it mean when my broker says that shares are for auction?

    An auction market is one in which stock buyers enter competitive bids and stock sellers enter competitive offers at the same ... Read Answer >>
  3. Who uses bills of exchange?

    Find out who uses bills of exchange, why they are important in international trade and what happens when a bill is traded ... Read Answer >>
  4. What is the difference between a bill of exchange and a promissory note?

    Learn what bills of exchange and promissory notes are, along with notation of the primary differences between these two documents. Read Answer >>
  5. What exactly is being done when shares are bought and sold?

    Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange ... Read Answer >>
  6. What is a forward contract against an export?

    Understand forward exchange contracts in exporting, and learn the purpose of using a forward contract and its advantages ... Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center