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."
Trades in Investing
Trades in Stock Investing
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.
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.
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.
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.
Related Fool Articles
Recent Mentions on Fool.com
- Energy Future Holdings: How the Biggest Leveraged Buyout In History Became a Disaster
- Healthcare Investment Opportunities for the Long Term
- U.S. Air Force Prepares to Send SpaceX Stock Into Orbit
- Why Lower Iron Ore Prices Could Hit Caterpillar Stock Hard
- Pom Wonderful's Deceptive Ads: Lessons for Consumers and Investors
- 2 Great Stocks Senior Citizens Can Buy Now