We can often come across terms about a country's trade surplus in, for example, foreign trade. We understand that a given product is exported and another is imported, but what exactly is export and import and what importance they have for the economy.

Balance of trade (BOT)

Balance of trade (BOT) is the difference between the value of a country's imports and exports for a given period and is the largest component of a country's balance of payments. A country that imports more goods and services than it exports in terms of value has a trade deficit while a country that exports more goods and services than it imports has a trade surplus.

The formula for calculating the BOT can be simplified as the total value of exports minus the total value of its imports.

Balance of trade (BOT)=Exports−Imports

Economists use the BOT to measure the relative strength of a country's economy. A positive balance of trade indicates that a country's producers have an active foreign market. A negative balance of trade means that currency flows outwards to pay for exports, indicating that the country may be overly reliant on foreign goods. A country with a large trade deficit borrows money to pay for its goods and services, while a country with a large trade surplus lends money to deficit countries. In some cases, the trade balance may correlate with a country's political and economic stability.

A trade surplus or deficit is not always a real indicator of the health of an economy and must be viewed in the context of the business cycle and other economic indicators.

Export

Exports are incredibly important to modern economies because they offer people and firms many more markets for their goods. Exports are one of the oldest forms of economic transfer and occur on a large scale between nations. Exporting can increase sales and profits if they reach new markets, and they may even present an opportunity to capture significant global market share. Exports lead to increased investment, technological advances, and the expansion of imports, all of which contribute to economic growth.

For companies, it is of particular importance because it allows you to gain access to new markets through export, you can increase sales and profits, and even gain a large share of the global market. But there is also another side to this. Companies that export a lot tend to be more likely to fail financially.

Import

Import is a product or service that is manufactured abroad and purchased in your home country. Free trade agreements and tariffs often determine which goods and materials are cheaper to import.

Countries most likely import goods or services that their domestic industries cannot produce as efficiently and cheaply as the exporting country. Countries can also import raw materials or goods that are not available within their borders. For example, many countries import oil because they cannot produce it domestically.

Some critics argue that continued dependence on imports means a reduction in demand for domestically manufactured products and thus may inhibit entrepreneurship and the development of business ventures. Proponents argue that imports improve quality of life by giving consumers more choice and cheaper goods.

The Commitment of Traders (COT)

The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different participants in the U.S. futures market. These are compiled and published by the CFTC in the U.S. COT reports detail how many long, short, and spread positions make up the open interest. Traders can use the report to help them determine whether they should take short or long positions in their trades.