As one of the eleven terms in the Incoterms rules, FOB has been used most widely even if it may increase the exporter’s trade risk. By extending the trade model of the existing heterogeneous firms, the paper states the influencing mechanism that the trade costs exert on the firms’ choice of trade terms. The model shows that the duality of economy, distortions in the factor market and the prevalence of processing exporter contribute to the prevalence of FOB. The diversification of trade terms can improve the social welfare by enhancing the firms’ export opportunities. Adjusting the relative trade costs between domestic and foreign markets is of vital importance to reduce the exporter’s risk and balance the domestic and foreign demands