Saturday, July 19, 2008



The article touches upon the basic tenets of trading. It briefly explains about business acumen which helps in trading. What makes the business tick, the tricks and tools for successful trading are focused. The benefits involved in cash purchase rather in credit purchase are highlighted and justified. Various styles of trading are addressed creatively and innovatively. At the end the article concluded that passion and acumen are essential for business success.

KEYWORDS: Case Study of Shyam, What is Trading? Business Rotation, Volume Vs Profit, Cash Vs Credit Purchase, Styles of Trading, Channels of Distribution, Tricks of the Trade, Tools of the Trade & Conclusion.

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“Don’t waste time in learning the ‘tricks of the trade. Instead, learn the trade”.


Is there any profit in the trading activity of the below case study?

Shyam is a penniless person who has an ambition to start his own business. He approached few people for finance but he does not have anything to offer as collateral security to mobilize finance for his start up. Hence, he was denied finance. One of his friends who is a well established businessperson has agreed to offer his stocks on credit basis on a daily basis. Shyam agreed to take the stocks on credit so that he can pay back the amount by the end of the day. Shyam began taking 100 bags of rice everyday morning from his friend at a rate and started selling the stocks at the cost price in loose quantity and paid back the amount at the end of the day.

From the above case study everyone comes to a conclusion that there would be no profit as Shyam sells the stocks in loose quantity at cost price. But it is not so as Shyam sells each empty bag at a price of twenty rupees by selling the stocks in loose quantity thereby earning rupees two thousand per day apart from keeping up his commitment and building up his good will in the market That is what is known as Business Acumen.

The literal meaning of the word ‘acumen’ is “keenness and depth of perception, especially in practical matters.” Every successful businessperson, whether a petty shopkeeper or the CEO of a global empire, need to have the basic understanding of how to make money in business.


“My trade and art is to live”, Michel de Montaigne.

Trading is a process where buying or selling of the goods or services takes place at a mutually negotiated price. In the ancient days it was known as barter where goods were exchanged for goods. But in the present context, trading deals with exchange of goods or services against cash. In India we have 5 per cent of the population belonging to trading community.


When a particular amount is invested into business, every trader is interested in rotating the same funds to avoid fresh influx of fund which might involve interest burden. As far as possible, the same capital is rotated maximum number of times although there could be less profit in each business transaction. Because of the competition no trader is interested in losing his business to his competitors and also he works hard to see that the funds are rotated maximum possible number of times. Business rotation plays a crucial role in any business. It helps in reaching the break even point earlier when the business is set up freshly.


Often volume of business is inversely proportional to it profit. Usually higher the volume lower is the profit. Especially in FMCG (Fast Moving Consumer Goods) sector the margins or profits are thinner while the volume of business in thicker. It makes a business sense as; any how, the desired profits are achieved in high volume business although the profits are meager. But it requires huge capital to invest.


When goods or services are purchased in cash, the trader enjoys the benefit as anything purchased against cash there will be discount in pricing. That is the reason why cash discount is encouraged in few businesses as there is no element of risk involved and also the same amount is utilized for business rotation. It helps in generation of quick cash flow thereby avoiding default of payments. On the contrary, if the goods or services are purchased against credit there would be little higher price to offset the interest burden as well as the involvement of risk. That is why it is said that ‘Cash is King’ in business environment.

A few traders enjoy in risk taking and sell their stocks against credit. For instance, when a trader sells his stocks on credit with a profit percentage of 25 per cent and if he does the rotation four times then he gets the total profit of hundred per cent. That means he realizes his capital by the end of fourth rotation and further he takes higher risk as he has recovered his capital amount. Of course, there are other costs like expenses related to establishment and maintenance of business.


Any unorganized businessman adopts four styles of trading while doing business.

The first style being, purchase in credit and sell in credit. In this style, he buys the stocks on credit basis from his suppliers as he enjoys good will in the eyes of his suppliers. At the same time, he sells the stocks on credit to his customers as his customers enjoy his confidence. In this style of business there is an element of risk as the stocks are sold on credit. If the costumer defaults in payments due to the inability to sell the stocks or if there is any unprecedented happenings the trader would be in risky position. At the same time, if the trader himself defaults due to non sales of stocks then his good will would be at stake.

The second style being, purchase in credit and sell in cash. In this style, the trader would be in a safe and comfortable position as he gets stocks on credit from his suppliers and sells the same against cash thereby generating immediate cash and reinvesting the cash in other areas and generates more business and more profits. And he would be in a position to pay back to his suppliers with in the committed date.

The third style being, purchase in cash and sell in credit. In this style, the trader has no worry as buys the stocks against cash and the only concern is to recover the stocks sold on credit. There is an element or risk involved as he would be in tenterhooks till he realizes the cash for the goods sold to his customer. However, he can charge little higher price as he sells on credit.

The final and fourth style being, purchase in cash and sell in cash. This is the safest style of business where there is no risk element involved while buying or selling the stocks as everything is revolved around cash transactions. But the profits would be limited. And rotation would be faster and smarter. The capital invested in the business can be rotated relatively many number of times.

The above four styles are adopted often in the unorganized sectors of business especially in trading during wholesale business.


There are various types of distribution when it comes into marketing of goods. Let us take the traditional route of distribution where the manufacturer sells the stocks to wholesalers who in turn sell the same to their retailers and who carries forward the stocks to the consumer directly. It is, in fact, the retailer who gets in direct contact with the consumer and who reads and learns the pulse of the consumer.

The manufacturers directly sell the produced stocks directly to various wholesalers with nominal profit as he sells in huge quantity. The wholesaler keeps reasonable margin and sells to various retailers in small quantity who usually keeps diversified range of products where retailers would be in a comfortable position to buy as per their requirement in few quantities. The retailer usually holds limited quantities of all diversified products to cater to the end consumers. At the end consumers will have the option of purchasing everything under one roof.

Of late, the retail sector is changing dramatically in India with the entry of giants like Future Group, Reliance Retail, and Spencer’s. Because of their entry the traditional retailers will have major problem. The giants have deep pockets with financial muscle. They have economies of scale. They believe in mass procurement of stocks at lowest prices and passing on the benefits to the consumers directly thereby eliminating the role of wholesalers and middlemen. They are in a position to offer everything under one roof with many discounts and facilities. The petty retailers will also have tough time to survive from the onslaught of retail giants. Either they have to reinvent or evolve in their business approach or to exit. It is indeed a challenging and Herculean task for petty retailers and traders. The situation is similar to that of early nineties where Indian industry protested to the entry of multinationals into our country due to Liberalization, Privatization and Globalization. Subsequently the Indian industry took it in their stride and survived and, now, we have Indian MNCs who set up their shops else where across the world. The present unorganized retailers and traders should also evolve themselves accordingly.


The traders play many tricks for their survival and success. When they know that the prices of the goods will go up due the changes in budget or shortage of stocks in the near future, they hold the existing stocks and stop selling thus creating artificial demand. When the supply is stopped the demand goes up automatically as demand and supply are inversely proportional. And also they buy the stocks from their co-traders against cash-purchase if they are confident that the prices shoot up. They go to the extent of procuring stocks from outstation traders for holding. And in some cases they take firm commitment from the co-traders by lifting the stocks in the near future by paying the cash for the same instantly. It requires a lot of business acumen to predict and forecast. Usually the traders have intuition and gut feeling and they go by the same during the decision-making.

Information is the key to success in trading activities. If the traders get information that more stocks are going to be dumped then they immediately release the existing stocks with lower profits to contain the damage. In few cases they do not hesitate to sell the existing stocks for minor losses as they believe in the slogan of ‘Immediate loss is quick gain’.


Bill Williams used to say that trading is the ultimate psychotherapy. Trading style unfolds the qualities and characteristics of an individual. It helps in diagnosing ones attitude apart from being excellent in the art of trading.

During the seasonal business like school season, it is necessary to take stock of the history of the sales in the last year as it helps in forecasting the demand thereby averting the dead stocks (that is, the stocks lying unsold without any sales movement). In school season, there will be good demand for stationary items, bags, uniforms etc., Hence it is ideal to estimate properly to avoid getting the stocks unsold. Improper judgment in forecasting results into blockage of stocks resulting into storage of the goods till the next year. That results into paying rents for the warehousing and also hinders the rotation of the cash flow. Similarly during the rainy season there would be good sales of umbrella and rain coats. Therefore, it is essential to forecast the monsoon and prepare accordingly. Sometimes, luck plays a crucial in business. Therefore, we can say that ‘business is nothing but a game of luck and intuition’.


Late Dirubhai H. Ambani was a great visionary who had excellent business acumen. At the time of control raj he converted the then existing threats into opportunities and built Reliance Empire. He did business under many constraints and limitations and excelled as he had fire and passion. Everything is possible in the business world if there is passion and acumen.


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