Econ Grapher

Trade

What is Trade?
Trade is the voluntary exchange of goods and/or services. In most modern economies trade is carried out with a medium of exchange (i.e. money/currency). Prior to the advent of money, trade was carried out under the principle of barter, i.e. people would freely negotiated trade of goods and services between themselves e.g. trading a chicken for s bag of grain, etc. Trade is the fundamental mechanism of the free market, and at the aggregate level is the key force for allocation of scarce resources. Trade also offers the opportunity for interdependence and thus specialization, e.g. allocating all of one's resource to producing a particular output. In this way the overall standard of living increases as this specialization allows a greater rate of innovation, improvement, and efficiency, which contributes to economic growth and progress.

How does it relate to Markets?
Just as trade is a critical element of the economy, trade is the fundamental precept of markets. Without the concept of trade financial markets and exchanges would not exist. In the financial market sense a trade is where a buyer and seller agree on a price. In more technical terms, in the case of a stock market it is where a buyer bids at a certain price and volume for a stock, and a seller posts an order to sell at a certain (or market determined) price and a certain volume - when these orders match on the order book, a trade occurs. Thus the event of the trade sets the price, which emits signals and information; including the very volume that took place at the trade event. Trade in financial markets is generally more complex than trade in the real economy because of the strategic nature, time dimension, and variety of purposes for trading.

Sources and further reading:
Investopedia - Trade
Stanford University - The Case for Free Trade (by Milton Friedman and Rose D. Friedman, 1997)
Should trade be considered a human right?
Wikipedia - Trade
The Free Dictionary

Graph Library:
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Original Source: http://www.econgrapher.com/encyclopedia-trade.html

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