Trade has withstood the test of time and continues to flourish today.
The International Reciprocal Trade Association reports the world trade industry growing at a rate of 8 to 12 percent annually, with estimates of 20 percent of all business transactions being completed with trade. Trade presently accounts for $12.1 billion a year in transactions in the United States alone, with over 65 percent of Fortune 500 Companies employing their own internal trade divisions.
Trade can range from the simple "I wash, you dry" supper dish scenario, to large-scale counter-trade agreements in which nations swap natural resources for technology.
Webster's dictionary defines trade as "trading by exchanging one commodity for another." This method of trade is known as "direct trading", in which parties trade directly with each other for various goods and services.
Direct trading is one of the most creative methods available for business owners to expand their business without using cash. These out-of-the-box entrepreneurs trade what they already have (including distressed inventories, over-stocked products and services, skilled hourly labour) for what they need without having to pay cash.
Farmers trade their grain for building materials and machinery. Pepsi trades their cola syrups for premium Russian vodka. Students volunteer their time to gain valuable work experience.
The possibilities are endless, with goods, services, experience, knowledge, and contacts all serving as tradable commodities.
Direct trade provides countless opportunities for entrepreneurs who know what they want to get great deals. The trick is finding trading partners who need what you have to offer.
Take Pete the plumber for example. Pete needs business cards printed and is willing to trade his labor in exchange for them. The printer Pete talks to currently is not in need of plumbing services. Unless Pete is able to meet the printer’s needs with something else of equal value to the business cards, he will be out of luck.
Successful direct trading occurs when both parties can offer each other equal value goods or services that the other needs.
Indirect trade on the other hand eliminates the need for coincidental wants. Trade exchanges are a perfect example of indirect trade in action. Let’s look at how Pete the plumber could benefit from this:
If Pete were to join a trade exchange, he would be able to purchase business cards without paying cash, even if the printer didn’t need his plumbing services.
Pete could achieve this by earning trade dollars to pay for his printing by providing plumbing services for another trade exchange member.
The trade dollar credits Pete earns can be spent anywhere within the exchange, without needing to coordinate direct trade transactions.
Using trade dollars to purchase goods is a similar form of indirect trading to purchasing with cash. Currency acts as a medium to facilitate exchanges without needing to coordinate coincidental wants. The key benefit to using trade dollars instead of cash for indirect trading is that you get to keep more of your money and improve your bottom line.
The first trade exchange opened in the United States in the 1950’s for the purpose of coordinating indirect trades between merchants without the use of cash. A system of credits and debits was used to keep track of members’ sales and purchases within the exchange.
Thanks to computerized technology, trade exchanges are now able to assign value to products and services provided by their clients in electronic “Trade Dollars.” These electronic credits are analogous in value to our domestic economy cash dollar according to the Canada Revenue Agency.
Exchange owners are responsible as third-party record keepers for their members’ transactions. Trade exchange members are responsible for declaring trade dollars earned - they are considered taxable income the same as cash.