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Trade

Trade is the exchange of goods between two parties. This vague term is used to describe many different specific things in investing and personal finance. "Trade" can also be used to mean "field of work," as in "mastering a trade."

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Trades in Investing

Trades in Stock Investing

Any time you buy or sell a stock, that is a trade.

Carry Trades

A carry trade is a way to exploit an interest rate differential (IRD). If you can borrow money at 4% interest and invest it for 8% interest in another country, this form of arbitrage is called a "carry trade." This is not as easy as it sounds, because exchange rate fluctuations can quickly make your invested capital worth less than the debt you used for leverage.

International Trade

When goods are sent from one country to another in exchange for currency or other goods, it is called "international trade."

Trade Deficits

When one country sends ( exports ) less than it receives ( imports ), this is called a "trade deficit." This is cause for concern, according to some, who say that a trade deficit causes inflation and diminishes real productivity. Others argue that at worst, the trade deficit is the symptom of real problems, and is more likely just a function of different economic specializations.

Free Trade

When there is neither government interference nor help with a country's exports and imports, such as burdensome tariffs (a sort of tax imposed on imported goods), or subsidies, that country is said to have a "free trade" policy. It has been noted that countries moving toward free trade policies have higher GDP growth and employment, and those starting to interfere with or "help" trade have lower GDP growth and employment.

Fair Trade

When one country is poor and another country is rich, the poor one often lacks the infrastructure, skilled labor, and other things required to produce the same goods at the same low prices as the rich country. This is often exacerbated by production or export subsidies in the rich country, or burdensome government in the poor country. To combat this, some people have decided to pay a higher price or accept a lower-quality product in order to support trade with the poor country. This is called "fair trade." Some are even seeking to make this mandatory.

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