Trade is the process of purchasing and procuring of goods and services with the object of selling them at a profit.
Trade means buying and selling of goods. It involves the exchange of commodities for money or money’s worth. It is the means by which people sell those goods which they do not need.
Traders serve as the link between producers and consumers. They help in directing the flow of goods to the most profitable markets.
They, also bring about the equitable distribution of goods. In the absence of traders, producers will have to go in search of consumers. Trade is the nucleus of commerce. Other parts of commerce such as transport, insurance, warehousing, banking and advertising revolve around trade.
Trade may be classified into home trade and foreign trade. Home trade may further be subdivided into wholesale trade and retail trade. Similarly, foreign trade made by sub-divided into import, export and entrepot trade. These various types of trade are described below:
1. Home trade:
Home trade is also known as domestic trade or internal trade. It means buying and selling within the geographical boundaries of one country. Both the buyer and seller belong to the same country.
For example, trade between Bombay and New Delhi is home trade. Payments in this type of trade are made in the currency of the country.
Home trade is of two types:
(a) Wholesale Trade:
It implies buying and selling of goods in large quantities. Goods are sold to industrial users or institutional buyers. A wholesaler buys goods in large quantities directly from the producers and sells them to other dealers.
He serves as a connecting link between the producers and the retailer. A wholesaler specializes in a limited variety of goods.
A wholesaler generally has to keep a large stock of goods. He usually sells goods on credit. Therefore, a huge amount of capital is required in wholesale trade.
(b) Retail Trade:
It involves buying and selling of goods in small quantities. A retailer buys goods from the wholesalers and producers and sells them directly to the ultimate consumers.
He serves as a connecting link between wholesalers and consumers. He generally keeps a wide variety of goods and maintains personal contacts with consumers. Retail trade is the final stage of distribution.
2. Foreign trade:
Foreign trade is also known as external trade or international trade. It refers to buying and selling of goods and services between two or more countries. In foreign trade, a businessman in one country buys from or sells to another businessman in a different country.
Foreign trade provides a very wide market for the distribution of products. It enables a country to concentrate on the production of goods for which it is best suited.
Every country can obtain the articles which it cannot profitably produce at home. Special problems such as international means of transport (shipping and airways), foreign currency, licensing, government rules and regulations, marine insurance, etc. are involved in foreign trade. Foreign trade is of the following types:
(a) Export Trade:
It implies the sale of goods to foreign countries. For example, India exports tea to the United Kingdom.
(b) Import Trade:
It refers to the purchase of goods from foreign countries. For instance, India buys petrol from Iran.
(c) Entrepot Trade:
It means importing (buying) goods from one country for the purpose of exporting (selling) them to another country. For example, India imports certain commodities from European countries and exports them to Nepal and Bhutan. This type of trade is also known as re-exporting trade.