Forex trading is popular for its vastness. There’s so much to learn, even for an experienced trader. That is why you will find tons of books on forex trading, covering various topics. One intriguing subject is Counter Trading.
What is it, and how does it work? Let’s take a detailed look at counter trading in forex.
Counter Trading in Forex 101
What is Counter Trading?
Counter trading is a reciprocal form of conventional trading. Here, products or services are exchanged for other goods or services instead of currencies. This type of trading is more common between countries. Not every country is equipped with credit facilities or unlimited funds. Therefore counter, trading makes it easier to exchange goods and services.
How Does Country Trading Work?
Counter trading can be in various forms. However, it determines a model for countries to exchange goods and services with other countries. It is used as a part of import and export strategies. Trades based on this model are known as Countertrades.
A countertrade ensures that a country with limited resources will get access to new materials and required items. It also provides opportunities for exporting countries to offer their valuable goods and services in a broader market. As a result, the country can grow its several industries.
Counter Trading in Forex
Counter trading in forex works the same as international trading. Since you can trade a variety of instruments, you have the opportunity to exchange these instruments with other traders. You can also exchange relevant serves in forex trading.
However, the market can play an integral role in forex counter trading. For instance, you can trade the New York session forex pairs at the right price with others if you know the market conditions.
Types of Counter Trading
These are the three main categories of counter trading.
A counter purchase is a typical arrangement where the seller sells goods or services to a buyer. However, the exported also agrees to buy other goods from the buyer within a limited time period.
Sellers entering in a counter purchase are required to use a trading firm to sell the goods. They also agree that they will not use these goods or services themselves.
Barter is the most popular and oldest countertrade arrangement. Here, the seller and buyer make the direct exchange of goods and services with an equivalent value. But, there is no cash settlement involved in barter.
For example, a bag of coffee beans will be traded for a kilo of meat. These transactions are referred to as a trade.
An Offset arrangement requires the sellers to assist in marketing products manufactured by the buyer. The sellers can also allow some of the product’s manufacture to take place in the buyer’s country.
Offset trading is most commonly used for large and expensive items, such as aerospace.
That’s all you should know about Counter Trading in forex. While it may be new to some forex traders, this form of trading has always been used by countries to exchange with each other.