Learn Forex and Forex Trading Strategies the Easy Way

What is a trade?

So, what is a trade?

I'd say a trade results from two parties agreeing on the value of two different items or articles, and then exchanging one or more of these articles with each other to their mutual satisfaction.

What is a Trade ? is the answer complex? - not really!! Consider this example -

A wheelwright in the middle ages makes a new cart wheel for Farmer Giles. He values it at 7 chickens. Farmer Giles values it at 5 chickens. They argue gently over a pint of mead, and eventually agree that 1 wheel = 6 chickens, so they shake hands and the deal is done
A TRADE results and establishes that - 1 cart wheel is worth 6 chickens.

This very simple event has created something of immense significance - it has created a MARKET FOR CART WHEELS - a market for which the currency happens to be chickens. Looking from a different perspective, you could also say that a MARKET FOR CHICKENS has also been created, for which the currency happens to be cart wheels. Not only has a TRADE been completed, but this trade has also set a CURRENT MARKET VALUE for both wheels and chickens.

This current market value will not alter until another event occurs.

Would you care to speculate what that might be?

The answer is - Someone else wants either chickens or cart wheels and is willing to pay more for them!

Picture this situation - Farmer Jones has just broken a wheel bang in the middle of harvest, and overhears the discussion in the pub. He is desperate to gather in his harvest before the rain. He waits till the trade is just about to be agreed between Farmer Giles and the wheelwright, then he offers to give 7 chickens for the wheel, to Giles' huge annoyance. Just to be perverse, Giles offers 8 chickens, and so it goes on. It's called "THE LAW OF SUPPLY AND DEMAND" and of course you're familiar with it. In this example, wheels are perceived to be in shorter supply than chickens. Obviously in due course, if wheels become "worth" enough as related to the chickens, which represent the "money" of the time, other people will be tempted into the wheelwright business and in time, "prices" as represented by the number of chickens needed to trade for a wheel, will FALL due to OVERSUPPLY of wheels.

forex trading made easyIn modern times of course we use PAPER MONEY to buy things, and that's what we get when we sell something, purely for convenience, and of course you can see in any auction house , or on E bay, exact modern parallels to my little story.

Now all this discussion about - What is a trade? may seem a silly little digression, but there is an enormously important point to the story, which nearly everyone misses - one of the so called "TRADING SECRETS" about the markets. (As you learn more about trading, you'll discover that these "TRADING SECRETS" are usually hidden in "FULL VIEW", you only have to know where to look for them!)

I won't keep you in suspense, this "hidden in full view" secret is -

WHENEVER SOMETHING RISES IN PERCEIVED VALUE, SOMETHING ELSE DROPS IN PERCEIVED VALUE. WHICH WAY YOU SEE IT JUST DEPENDS ON WHICH SIDE OF THE TRADE YOU HAPPEN TO BE ON.

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