Trading History

Since time immemorial, people have traded with each other. It started with a barter system, till modern civilisation thought of money as a medium of exchange.

A trade happens when both parties have some value to be delivered that is needed by the other party. The price point at which trade happens, is a point where the seller thinks the price adequately compensates for the value of his goods/services. The buyer thinks the price is low enough for the value he buys. Thus the price and value intersect from opposit directions in the mind of each party.

After the industrial revolution and after usage of money for trading became prevalent, people started gathering together for exchanging similar goods, and what may be called marketplaces started forming. These markets were characterized by large number of buyers/sellers. This shift to many participants from a few started bringing in competition and price discovery became a result of hopes/fears of a large number of participants.

Interstingly, whether this led to markets becoming more rational or irrational is debated by many philosophers and economists. I feel it became both. In normal times when the price discovery happened based on demand of the goods in end user markets and supply by producers, and abnormal times when mass hysteria can swing the prices both ways in waves.

The man characteristics of these markets was entry of a new class of participants, the traders, who bought or sold because they visualised some body else will relieve them of their position at some future point of time. These traders would or supposed to imagine the real demand/supply situationwhle taking a position, but may think more of the psychology of the people who may study these demand/supply balances. So it became a game of I think...... that you would think............. that you would think what I would think............ and so on ad infinitum.