forex zero sum game

[Christiaan]

The one thing I hate about the forex market is that everytime you make money you do it on someone elses expense right?But is that nessary true? I found this nice quote I want to share with you

Is Forex a zero-sum game? Ed Ponsi's answer to this controversial question throws some light into a subject which is often misunderstood:

There is a misconception among some traders that every trade must have a winner and a loser. [...] suppose you enter a long position on EUR/USD and at the same time, another trader takes a short position in the same currency pair. The broker simply matches the orders and collects the spread. This is exactly what the broker wants, to keep the entire spread and maintain a flat position.

Does this mean that in the above scenario one party has to win, and one must lose? Not at all, in fact both traders can win or lose; perhaps one has entered a short-term trade and the other has entered a long-term trade. Perhaps the first trader will take a profit quickly, but there is no rule that states the second trader must close his trade at the same time. Later in the day, the price reverses, and the second trader takes his profit as well. In this scenario, the broker made money (on the spread) and both traders did, too. This destroys the oft-repeated fallacy that every Forex trade is a zero-sum game.

Nice theory ha but is it practical

what do you think?

 

[littlemog]

Well, when the price reverses the next day, what about the buyer who will put the money into the 2nd guy's pockets?

 

[rwb]

If anyone has any concerns or qualms in this regard then they should depart the trading environment immediately, get a job with the local council and send their kids to a school that bans any form of competitive sport!

The one thing I hate about the forex market is that everytime you make money you do it on someone elses expense right?

 

[cristoff]

Interesting quote, but there are lots of factors that can move an exchange rate other than purely speculative capital. If a business decides to set up a factory in a foreign country, they may need to buy a large quantity of that currency to pay labour costs, running costs and wages etc. Does anyone lose the same amount as the overall net gain?

There are good arguments for fx being zero sum, but in my opinion it is not quite.

 

[arabianights]

Most FX traders are not speculating on the course of foreign exchange rates; they're hedging. So it's irrelevant.

 

[Technically Fundamental]

Your arguement is based on the assumption a trade is always two parties with simultaneous entry in opposite directions when it could that a long entry is taken on by someone who has been holdiong a short for some time.

Also consider person 3 (in this case the broker)who takes the money off of two people trying to beat the system.

 

[intradaybill]

The one thing I hate about the forex market is that everytime you make money you do it on someone elses expense right?But is that nessary true? I found this nice quote I want to share with you

Is Forex a zero-sum game? Ed Ponsi's answer to this controversial question throws some light into a subject which is often misunderstood:

There is a misconception among some traders that every trade must have a winner and a loser. [...] suppose you enter a long position on EUR/USD and at the same time, another trader takes a short position in the same currency pair. The broker simply matches the orders and collects the spread. This is exactly what the broker wants, to keep the entire spread and maintain a flat position.

Does this mean that in the above scenario one party has to win, and one must lose? Not at all, in fact both traders can win or lose; perhaps one has entered a short-term trade and the other has entered a long-term trade. Perhaps the first trader will take a profit quickly, but there is no rule that states the second trader must close his trade at the same time. Later in the day, the price reverses, and the second trader takes his profit as well. In this scenario, the broker made money (on the spread) and both traders did, too. This destroys the oft-repeated fallacy that every Forex trade is a zero-sum game.

Nice theory ha but is it practical

what do you think?

"Trading has been characterized as a zero sum game, and rightly so. " In fact, when returns are measured relative to a benchmark, all types of trading are zero-sum.

Forex Factory - View Single Post - The Structure of Forex Brokers

 

[shadowninja]

For most traders, the sum total of their account becomes zero.

 

[Christiaan]

it might be a zero sum game but we are employing people.All those brokers needs analyst ,programmers, live agents ect.What would be a good numeber is how many people has jobs because we trade this fasinating market that exits in virtual space.

 

[Hotch]

Your arguement is based on the assumption a trade is always two parties with simultaneous entry in opposite directions when it could that a long entry is taken on by someone who has been holdiong a short for some time.

Also consider person 3 (in this case the broker)who takes the money off of two people trying to beat the system.

Wrong really, because someone is still losing somewhere along the train.

Anyway, it's not really zero sum as said because most of it is not speculating, if it all was, sure it would be zero sum, but there wouldn't be a market.

 

[TheBramble]

Unbelievable. Take out spreads and of course it’s zero sum. There’s nobody topping it up, bringing in ‘new and free’ funds and bailing out the losers. FX is not TARP.

On aggregate – those that lose give to those that win. Forget the time element. Forget the individualisation element. Forget different timeframe participants. Forget who specifically gets your dosh when your micro-lot 6 pip stop gets hit.

Assume all FX trades that EVER have and EVER will happen – happen in one instant of time. Zero sum.

 

[rathcoole_exile]

Oi Tony !!

you've been warned before about bringing logic :idea: and reason :idea: into these discussions !!

if you've got nothing ridiculous :smart: to say, you shouldn't even really speak

 

[Christiaan]

not my argument

it's not my argument if you read carefully you will see I quoted someone I don't really believe his theory is practical but thought I share with you.

 

[GammaJammer]

Most FX traders are not speculating on the course of foreign exchange rates; they're hedging. So it's irrelevant.

Correct - and that's what people forget - FX is both a primary investment market and a secondary by-product of other activities (both investment related and also otehr stuff - even down to the aggregate ebb and flow of tourist holiday money).

So while some people are sitting there waiting for the perfect time to 'ping' eurusd, the simple fact is most people aren't bound by that type of framework. So yes - it genuinely isn't a zero sum game in that respect.

GJ

 

[96pills]

Gamma, so what percentage of the daily FX market turnover (if it is measurable) is short term trading?

 

[TheBramble]

Correct - and that's what people forget - FX is both a primary investment market and a secondary by-product of other activities (both investment related and also otehr stuff - even down to the aggregate ebb and flow of tourist holiday money).

So while some people are sitting there waiting for the perfect time to 'ping' eurusd, the simple fact is most people aren't bound by that type of framework. So yes - it genuinely isn't a zero sum game in that respect.

GJ

If an outright speculative Long on EURUSD makes a profit on the other side of someone else’s Short EURUSD hedge which loses for them, but means their overall position (whatever that may be) comes in flat or positive, the fact remains the FX side of the arrangement is net zero.

 

[Technically Fundamental]

So FX trading (for profit on an individual level) is more about riding on the resultants of activities pertaining to institutional hedging? Does that make it possible to make speculation on the currency market based on financial statements (i.e. cash flow statements)of major players?

 

[arabianights]

in theory, but as you can't get them in real time and broken down by currency, no

As a general rule if you know everyone's position in the market, you can **** them over

 

[Technically Fundamental]

So whats to stop (quasi) insider trainding pertaining to information held in an institutions cash flow statement? Is that even illigal in the FX markets?