A trade discount is an amount by which the price of something is reduced for a person or business in the same trade. It is an allowance or concession granted by the seller to the buyer, if the customer purchases goods above a certain quantity or above a certain amount. The amount of the purchase made, is always inwards at after deducting the trade discount, ie., only the net amount is considered. For example, a trade discount is a reduction to the published price of a product. For example, a high-volume wholesaler might be entitled to a 40% trade discount, while a medium-volume wholesaler is given a 30% trade discount. Thus, the total retail price of $1,000 is reduced to $700, which is the amount that ABC bills to the reseller. The trade discount is therefore $300.
Trade discount is not recorded in the books. They are used for determining the net price. It may also be abnormally huge if the producer is trying to set up a new allocation channel, or if a retailer has a huge deal of allocation power, and can demand the extra discount.