For many years now, most people have only known about trading Futures and Options trading on the futures exchanges. However, this market is much more than what people may think. It goes much deeper than that. There are several different types of trading platforms available, each with its own trading meaning. When a trader decides to trade in this market, it means that he/she is entering a trading position with a specific time frame.
A trader is someone or entity, in the business, who purchases and sells financial instruments like equities, bonds, commodities, derivative instruments, mutual funds, and securities in the scope of investment. These instruments are usually traded as commodities such as oil, gold, silver, and some other goods whose prices change according to the economy. Other financial markets that trading can be performed on include stock trading, forex pairing, commodity trading, and Forex futures trading among others.
The most popular trading platform is the over-the-counter (OTC) trading system. OTC means Over the Counter Market, which is just like trading on the over the counter exchange but involves private trading unlike in the regular physical market. This type of trading is done through two parties – the one who wants to trade, the one who wants to buy the financial instruments being traded. A Futures trader, on the other hand, trades on an exchange where the commodities are actually bought and sold on a day to day basis.
One reason why traders prefer to trade in this system is because of its comparative advantage. Unlike in the physical markets, trading is done twenty-four hours per day. This gives the trader the advantage of being able to execute his/her orders without a break in trading hours. Traders also need not worry about storage of goods because they can keep their goods at any point of time when trading in the over the counter markets. In addition, they do not have to worry about transporting goods from one place to another for the sake of storage.
Another advantage traders have been through barter systems. Barter exchanges are basically networks of local markets where goods can be exchanged. This is done through a process where one party (exchange) pays another party (market) for goods being exchanged. Since, trading on the barter exchanges does not involve any financial risk or capital investment, it has become quite popular among people.
Furthermore, trading on the barter exchanges is perfect for people who want to protect their interests. For example, if you are a farmer and you want to sell your produce in another part of the world that is under better economic conditions, trading is the answer. You will get better prices for the produce. Since your produce is sold for lesser prices than those in the other part of the world, you get to have a higher margin, which will allow you to purchase other goods that will give you a higher opportunity to earn profit.
In addition to this, trading on the barter exchanges gives you the chance to purchase raw materials in a cheaper price. However, the disadvantage of free trade is it brings a reduction in employment and in wealth creation. Protectionism can be defined as an act of protectionism where one nation restricts entry of goods or services to another nation that is based on the country’s trading partners. It is often used to prevent foreign companies from entering an area or establishing there. It may result to loss of jobs or investment in a particular industry. So, protectionism is a form of comparative advantage for a country’s trading partners.
Trading on the cash and carry exchange is very beneficial because it gives a chance to international trade. Because it involves trading, it is easy and less risky than trading on the over the counter commodities. Also, since it is traded in cash, there is no need for real estate or storage facilities. Cash and carry exchange is usually traded between two countries. So, it makes international trading easier and less expensive.