A lot has been explained. (Also look at Peter’s Byzantium.) Let’s have a look at strategy. First of the basic rules:
- In each trade node money is generated, usually something flows in and usually something flows out.
- Traders can collect or steer.
- Everything, which is not collected, flows out.
- Traders fight balanced with their trade-power, which fraction of money is collected (number @ the trade node) and which fraction is steered and where to (number @ the trade line).
The decision points are:
- How to increase trade power?
- Where to place my merchants?
As for the trade-power:
- Each owned province counts.
- Some provinces get bonuses: Coastal (small), estuary (river delta, large) & special for historical importance (capital of Denmark --> sound toll, Hansa cities, Tangir).
- Buildings increase the trade-power.
- Traders themselves have some trade-power. (Collection power gets a malus everywhere but home) [Malus is a word

]
- Light ships add trade-power.
So where to place my merchants?
Normally one collects at home. Collection elsewhere is usually not as good as steering (at least in the beginning).
Steering can be done cleverly, because you have friends – or at least guys with similar interests.
For example in my Portugal game I had a lot of Brazil colonized and placed one collection merchant at home and one steering agent at Ivory Coast. From Brazil everything flowed out, because I hat 100% trade power, but did nothing with it. At Ivory Coast little Investment (1 province @Fernando Po, 1 merchant & 2 light ships) allowed for 50% of money to flow in my direction around Africa, i.e. 50% of Brazil’s stuff and 50% of Ivory-Coast-Production went in my direction. The next node did not need my attention, because no-one wanted to collect (some even steered towards my home node).
The important take-home-message is not to look only at neighbor nodes or those where your “friends” already pull in your direction, but steer there where are big amounts are collected or steered in the wrong direction.
For Africa especially: @ Ivory Coast there is an estuary of Hausa. Taking that or selecting valuable provinces should be sufficient – especially if your competition is small enough, to agree to steer as well as you want. Only a European power dominating an African node and collecting there could be a problem. The node at the Gulf of Aden could also be shared. Remember: Only domineering powers will ever collect around Africa in order to dry that money-flow up.
This could lead to strange partnerships, e.g. Venice and Mamluks steering together towards Alexandria, but fighting then, how to share.
There are two trade-off of with regard to quality versus quantity and one limit concerning the later. At home one could try to get many provinces (y’all know world-control and stuff) or to develop your provinces with value-increasing buildings and better technology (role-playing).
This is even more important at colonies. Without buildings neither tariffs nor trade-goods will be there in abundance. Furthermore the number for ships limits the tariffs
Note, a totally dominated and well-developed, colonial trade-node should be worth collecting even with the malus – especially, when you could get only a share at the final destination in Europe. Taking strategical considerations like pirate-patrol, defensibility during wars, etc. into account, small but focused colonial empires seem to be a temptation.