What is the concept of trading?
Most of us engage in trading continuously in our daily lives without realizing that we are doing so. For example, everything we buy from stores is a form of trading money in exchange for obtaining the goods or services we purchase. Thus, the concept of trading can be simplified in its definition as the exchange of one thing for another. Usually, when the term trading is used, we immediately recognize that a commodity or something has been exchanged for money, or in other words, buying something from one person and selling it to another.
Trading mainly relies on supply and demand in general, where the value of what a person or a group of people wishes to buy changes depending on the fluctuations in supply and demand. An increase in demand for a commodity or financial asset means that a large number of people are willing to pay the price to obtain it, and thus increasing the demand for a commodity will lead to an increase in its price due to the high need for it.
Conversely, an increase in the supply of a commodity means that there are no purchase requests for it, or that the quantity supplied is higher than the volume of demand, which may lead to a decrease in its price in order to attract customers to buy it.
Let's review the following example to understand the topic more clearly.
Let's assume you are in a car market - meaning cars are exchanged - which is the commodity here - for money, and you wish to buy a specific model that can only be found in one store that has only one car of this model. If you are the only buyer at the store, you will likely be able to get it at a reasonable price. However, if there are several buyers wanting the same model, this means competition has arisen among them to obtain it. In this case, it is expected that the dealer will raise its price due to the large number of people willing to pay for it, which simply explains the first principle in the concept of trading, which is 'Increased demand - the desire to obtain - leads to increased prices.'
On the other hand, let's assume that the store has 10 cars of the model you wish to buy, and there are only two buyers. In this case, it is expected that the store will lower the price of the car to attract a larger number of buyers, and this step is a confirmation of the second principle of trading, which is 'Increased supply - or the available quantity of the commodity - leads to decreased prices.'
Therefore, what has been previously mentioned can be summarized by stating that the trading process works by exchanging something for another equal to it in the same value, and this value is determined based on the strength of supply and demand for this thing. The trading process has evolved over the ages, and in order to obtain the same thing, the counterpart varied at each period from bartering with another commodity, to exchanging it for gold or other metals, and finally exchanging goods for money in its various forms (cash, credit, electronic, or digital).
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