PSEC 105 – INTERNATIONAL POLITICAL ECONOMY

FIRST SEMESTER, ACADEMIC YEAR 2023-2024

INTERNATIONAL ECONOMIC STRUCTURE AND PROCESSES

THE TRADING SYSTEM

Alyssa S. Acosta
Crissha Mae T. Fangon
Jena Grace Camille P. Guerrero

INTRODUCTION

A trading system is a set of guidelines that creates clear buy and sell signals devoid
of subjectivity or ambiguity. Most often, technical indicators or groups of technical
indicators produce these signals. A trading system's main goals are to reduce risk and boost
profitability in any market condition. By altering the various parameters contained inside
each rule of the system, optimal levels of risk and return are achieved. The elimination of
emotion from trading is a benefit of systematic trading; for example, a systematic trader
won't place an unnecessarily high risk trade out of resentment over a previous failed deal.
However, as you shall see in a moment, a systematic approach has a ton of additional
advantages. No system is superior than another, but a good system is one that is tailored to
your objectives, time frame, start-up budget, and personality.

TYPES OF TRADING SYSTEMS

Day trading
Day trading involves the practice of purchasing and selling stocks within a single
trading day. Traders engaged in day trading must sell the shares they buy during the same
trading session. This approach is known for capitalizing on minor fluctuations in a stock's
Net Asset Value (NAV). Intraday trading carries relatively low risk due to the short duration
of holding positions, but excessive use of margin money can elevate the risk.
Scalping
Scalping, sometimes referred to as micro-trading, derives its name from the brevity
of the trading periods involved. Scalpers engage in multiple short-duration trades with the
aim of generating modest profits. The volume of scalp trading can range from a few dozen
to as many as a hundred trades per day. Much like day trading, successful scalp trading
necessitates a grasp of technical analysis, a comprehensive understanding of the market,
skillfulness, and a keen awareness of price trends.

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Swing trading
Swing trading involves traders taking advantage of brief market trends and patterns.
In swing trading, a trade can endure for several days, ranging from as little as one day to as
long as seven days. This approach entails examining short-term trends in order to assess
market patterns for the purpose of executing trades.
Positional Trading
Positional trading, also known as the buy and hold strategy within the realm of
delivery trading, involves traders holding onto their positions for an extended duration,
paying little heed to minor market fluctuations. Profit in positional trading is realized when
traders patiently await a substantial period before selling their assets.
HOW DOES TRADE WORK?
Trade involves mainly the act of exchanging products or services through transactions
of purchase and sale between economic entities. It is often used in macroeconomics when
referring to international trade, which occurs when nations trade with one another by
selling or buying products and services on the global market. It is also simply known as
the network of imports and exports between states, industries, and consumers that links
the world economy.
Traditionally, international trade is understood as the process by which an individual
or corporation from one country produces all of the components that make up a product
before marketing the finished goods to a consumer in another country. However, the
Organization for Economic Cooperation and Development (OECD) estimates that only this
form of trade accounts for about thirty percent (30%) of trade today, while the other
seventy percent (70%) or the majority of trade today is made up of the elements and
services that make up global value chains (GVCs).
GVCs, or global value chains, refer to the process where the production of goods to
be offered in the international market is subdivided among different companies or
workers across different nations where the component parts and services required for the
production process are readily available and cost-effective. In short, GVCs allow different
countries to take part in the manufacture of certain products based on the resources and
supply that are available to them, such as raw materials or human labor, at a high quality
and at a low cost.
Since global value chains involve multiple countries and industries in the production
process, the OECD developed TiVA, or trade in value added, which is basically used to
determine the value that countries and industries contribute to a finished product, as
well as to assess the role of trade through GVCs in generating employment and income.

COMPARATIVE ADVANTAGE AND ITS CRITICISMS

Each country differs in the resources it has as well as the way it produces its services
and products. This suggests the concept of comparative advantage, which is basically

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referred to as the capacity of a country to generate a specific product or service in the

most effective and efficient way possible compared to other countries. It also implies
that countries engage in trade with other countries by exporting the products or services
over which they have an advantage in exchange for the products or services over which
other countries have an advantage.
This basically means that any country is able to benefit by concentrating in certain
areas and conducting trade in accordance with its comparative advantage. Therefore,
according to the principle of comparative advantage, international trade is advantageous to
all economic entities involved. However, comparative advantage has its own criticisms:
1. Concentrating primarily on comparative advantages might lead to resource
abuse and degradation within the nation.
2. Overspecialization could encourage inequitable or subpar working conditions
in other places.
3. It ignores transport costs.

FREE TRADE VS. PROTECTIONISM

There are conflicting theories, just like with others. Free trade and protectionism
represent two opposing perspectives on the degree of regulation imposed on commerce in
international trade. The easier of the two ideas is free trade, which takes a laissez-faire
stance and places no limitations on commerce. The fundamental tenet is that efficient
manufacturing will be ensured by global supply and demand forces. Therefore, since market
forces will do so naturally, nothing needs to be done to protect or encourage trade and
growth. Protectionism, on the other hand, asserts that market stability depends on the
regulation of global trade. Supporters of this idea try to direct the market in accordance
with their belief that market inefficiencies may impede the advantages of global
commerce. Although there are many distinct types of protectionism, tariffs, subsidies, and
quotas are the most frequently used ones. These tactics make an effort to address any
inefficiency in the global market.

CURRENCY AS A MEDIUM OF EXCHANGE FACILLITATING TRADE

The most typical medium of exchange is money, which also serves as a unit of
account and a store of value. Cash, ACH transfers, credit cards, and wired funds are just a
few of the ways that buyers and sellers can move money. The ability of money to store
value ensures that the money acquired by sellers in exchange for goods or services can be
used to make future purchases with a similar level of value.

BARTER TRANSACTIONS
Bartering is the process in which two or more parties, which can include individuals,
businesses, or even nations, trade goods or services with each other directly, without the

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involvement of money. Despite being considered less advanced than modern economic
systems, barter transactions continue to occur regularly in various markets. In its most
straightforward form, bartering involves the exchange of valuable products between two
individuals.
For instance, Person A possesses two chickens but desires apples, while Person B has
a bushel of apples but wishes to acquire chickens. If these two individuals come into
contact, Person A may swap one of their chickens for half of Person B's apple supply, all
without the need for any intermediary currency.
BENEFITS OF THE TRADING SYSTEM
Trade has provided multiple conveniences to states, industries, and individuals across
the world. Global trade enables countries, corporations, and consumers to access products
and services outside of their own borders. Along with improving efficiency in the production
process and access to goods and services, it also makes it possible for nations to engage in
the international economy. Here are some of the benefits of the trading system:
1. It enhances the economic growth and competitiveness of a country
internationally.
2. It provides greater options and increased availability of goods and services
for countries, companies, and consumers.
3. It creates additional job opportunities in the trading sector.
4. It boosts national or personal incomes.

CURRENT TRADE CHALLENGES AND OPPORTUNITIES

The global trading system faces a range of pressing challenges and issues that
demand immediate attention and reform. These challenges encompass long-standing
problems and emerging issues in the global economy.
One major concern is the existence of multilateral trade rules aimed at promoting
fair international competition. However, these rules often encounter obstacles due to high
trade barriers and government intervention, undermining the fairness and efficiency of
international trade. Calls for modernizing and reforming the World Trade Organization
(WTO) to address these rule gaps are growing, encompassing monitoring, transparency, and
negotiation functions. In specific sectors like agriculture, market distortions persist, with
high tariffs and non-tariff measures impeding trade. Substantial support for agricultural
producers also distorts trade, necessitating comprehensive market and trade reforms.
Government support for various industrial sectors is increasing, highlighting the inadequacy
of current trade rules in dealing with industrial subsidies. New rules are needed to ensure
fair competition in international trade. The expansion of state-owned enterprises (SOEs)
with preferential domestic treatment and access to cheap financing raises concerns about
international competition fairness.

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Furthermore, multilateral trade rules have not kept pace with the evolving global
economy, especially in areas like trade in services. The 1995 WTO General Agreement on
Trade in Services no longer reflects 21st-century commerce realities, necessitating updated
regulations.
In summary, the global trading system faces complex challenges, including market
distortions, industrial subsidies, SOE internationalization, and outdated regulations. Reform
efforts, particularly in institutions like the WTO, are crucial to maintaining a fair,
transparent, and competitive global trade system in a rapidly changing economic landscape.
THE INTERNATIONAL TRADING SYSTEMS AND TRADE NEGOTIATIONS

The Sustainable Development Goals develop an international alliance to better the

conditions of the world's less fortunate. One important objective of this is to create an
open, predictable, rule-based, non-discriminatory trade and financial system. Numerous
thousands of unilateral, bilateral, regional, and multilateral laws and agreements exist
between more than two hundred countries as part of the international economic system.
Understanding global changes, the impact of trade on national development priorities and
interests, and fostering consensus on removing trade barriers are all necessary for
successfully managing this complex and quickly changing mass of political and economic
arrangements. development goals.

REFERENCES:

How trade works - OECD. (n.d.). Www.oecd.org.

https://www.oecd.org/trade/understanding-the-global-trading-system/how-trade-works/

One, A. (2023). Types of stock trading: Understanding stock investment. Angel One.
https://www.angelone.in/knowledge-center/online-share-trading/types-of-stock-
markettrading
‌ ECD.
O (2015). Why open markets matter - OECD. Oecd.org.
https://www.oecd.org/trade/understanding-the-global-trading-system/why-open-
markets-matter/

Beers, B. (2022). Examples of barter transactions. Investopedia.

https://www.investopedia.com/ask/answers/101314/what-are-some-examples-barter-
transactions.asp

‌ ECD. (2022). Current trade challenges and opportunities - OECD. Www.oecd.org.

O
https://www.oecd.org/trade/understanding-the-global-trading-system/trade-challenges-
and-opportunities/

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