Lesson 2:
Essential Trade Terminology – The Language of International Trading
Author: Saman Memarpour
Introduction
Trading has its own “language”.
If you want to negotiate confidently, understand documents, or avoid costly mistakes, you must master the vocabulary used in global commerce.
This lesson teaches you thecore trade terms that appear in nearly every international deal—fertilizer, petrochemical, metals, grains, energy, or any other commodity.
By the end of this lesson, you will understand what each term means, when it is used, who issues it, and how it fits into the trading process
1. LOI – Letter of Intent
A Letter of Intent is a document issued by the buyer to show a serious interest in purchasing goods.
Purpose
- Shows intent to negotiate or proceed
- Includes basic details (product, quantity, destination, specs)
Important Note:
An LOI is not a legally binding purchase order.
It is an early step that shows the buyer is serious enough to move forward.
3. SCO – Soft Corporate Offer
An SCO is the seller's first formal offer.
Includes:
- Product details
- Pricing
- Payment terms
- Incoterms
- Validity period
It is called “soft” because it is not a final binding offer.
It becomes binding once upgraded to the FCO or contract stage.
5. CIS – Company Information Sheet (Company Profile)
A CIS is a document that the buyer sends to prove they are an honest company.
Includes
- Company name & registration
- Address, email, phone
- Passport of authorized signatory
- Bank details
- Business license or website
A CIS allows sellers to verify legitimacy before offering price or contract terms.
7. RWA – Ready, Willing, and Able Letter
Issued by the buyer’s bank.
Purpose
- Confirms the bank is ready to support the buyer
- States that the buyer is financially capable
- Often required before issuing an LC or SBLC.
This document is standard in high-value commodity deals.
2. ICPO – Irrevocable Corporate Purchase Order
An ICPO is a more substantial commitment than an LOI and is often treated as an official purchase request.
Purpose
- Buyer commits to buy
- Used for finalizing the price and contract
- Contains company details, banking info, and purchase terms
An ICPO must be issued only when the buyer is ready, capable, and authorized to purchase.
4. FCO – Full Corporate Offer
An FCO is a more serious version of the SCO.
Purpose
- Official offer confirming the seller’s capability
- Sent after the buyer provides LOI or ICPO
Contains:
- Final price
- Quantity
- Specifications
- Payment terms
- Delivery schedule
- Validity
- Required buyer documents
The FCO is the critical document before contract negotiation.
6. BCL – Bank Comfort Letter
The buyer’s bank issues a Bank Comfort Letter.
Purpose:
- Confirms buyer has funds
- Confirms the buyer can purchase
- Demonstrates seriousness
A BCL is not proof of funds; it is a comfort letter confirming financial strength.
8. POP – Proof of Product
The seller issues a POP to show that the goods exist and are available.
Important Notes:
- POP is only issued after contract signing
- Issuing a POP too early is unprofessional and risky
- POP may include SGS reports, warehouse receipts, photos, and other documents.
9. SPA – Sales and Purchase Agreement (Contract)
The contract defines all terms of the deal.
Includes
- Quantity
- Quality/specifications
- Price
- Payment method
- Incoterms
- Shipment schedule
- Inspection
- Demurrage/Laytime
- Dispute resolution
This is the legally binding document.
11. CI – Commercial Invoice
Issued after loading or before release of documents.
Purpose:
- Customs clearance
- Payment finalization
- Accounting records
The CI represents the final invoice for the shipment.
13. BL – Bill of Lading
The most crucial shipping document.
Acts As
- Proof of shipment
- Title of goods
- Receipt from the carrier
Types include:
- Original BL
- Telex release BL
- Sea Waybill
Traders must understand BL handling rules, especially for LC shipments.
15. SGS / BV / Cotecna Inspection Reports
Independent inspections confirm:
- Quality
- Quantity
- Weight
- Loading process
The buyer relies on inspection results to protect against fraud.
10. PI – Proforma Invoice
A Proforma Invoice is an early invoice issued by the seller.
Used For
- LC opening
- Customs pre-approval
- Buyer’s internal budgeting
PI is not a tax invoice; it is a pre-shipment financial document.
12. Packing List
A detailed list of what is being shipped.
Includes:
- Bag count
- Weight
- Lot numbers
- Packaging type
Essential for customs, inspection, and warehouse receiving.
14. COO – Certificate of Origin
Issued by the chamber of commerce or authorized body.
Purpose
- States where goods were produced
- Required for customs
- Determines import duties
16. Incoterms
These define responsibilities between buyer and seller regarding:
- Freight
- Risk
- Insurance
- Delivery point
- Customs clearance
The 11 Incoterms will be taught in detail in future lessons.
17. Demurrage
A penalty fee is charged when the vessel remains in port beyond the agreed time.
Example
If the seller takes too long to load the vessel, demurrage charges apply.
19. FX (Foreign Exchange)
Currency fluctuations affect profit, especially when contracts are in USD, but costs are in local currency.
21. NDA – Non-Disclosure Agreement
Used when sharing sensitive data; protects confidentiality.
23. KYC – Know Your Customer
A verification process used by banks and trading companies to confirm the identity and legality of the buyer or seller.
18. Laytime
The agreed time allowed for loading or unloading a vessel.
If laytime is exceeded → demurrage
If loading is faster → despatch (in some contracts).
20. MOQ – Minimum Order Quantity
The smallest quantity a seller is willing to supply.
22. NCNDA – Non-Circumvention, Non-Disclosure Agreement
Used in brokerage/trading circles.
Purpose
- Prevents bypassing brokers
- Protects confidential buyer/seller information
Putting It All Together
These terms form the basic “language” of trading.
Understanding them enables you to move confidently into Lessons 3, 4, and 5, where we begin teaching
- Trade documents
- Payment instruments
- Incoterms
- Banking rules
- Logistics fundamentals
You now have the vocabulary necessary to follow every upcoming lesson with clarity.
Continue to the Next Lesson
Once you complete this lesson, you are ready to move to:
