Is the guy on the other end of your trade really that smart?

tar

Legendary member
10,443 1,313
Someone here likes to remind everyone how smart the guy on the other end of the trade is. I wonder if he can explain this:

http://www.forexlive.com/blog/2013/...ther-people-in-markets-were-smarter-than-you/

Lol , anyway this is a myth "for every winner in the market there's a loser" , not necessarily , for example if you bought cable from a trader at 1.60 then sold it later at 1.61 , you've made money but where is the loser in this equation ? the one who you sold your pounds to may take advantage of rollovers for example or could resell his pounds at 1.7 . And the one you bought the pounds from may be a loser or a winner as well . Like trading homes and assets ... etc .
 

Martinghoul

Senior member
2,690 276
These behavioral effects are relatively well-known (the famous 2001 MCI-MCIC paper comes to mind). In general, the market as a whole is smart most of the time, which doesn't stop it from being occasionally stupid.

All you need for there to be no loser for a winner are distinct sets of investors with different utility functions (which can happen, for example, if people have different time horizons).
 

Rhody Trader

Senior member
2,620 265
Lol , anyway this is a myth "for every winner in the market there's a loser" , not necessarily , for example if you bought cable from a trader at 1.60 then sold it later at 1.61 , you've made money but where is the loser in this equation ? the one who you sold your pounds to may take advantage of rollovers for example or could resell his pounds at 1.7 . And the one you bought the pounds from may be a loser or a winner as well . Like trading homes and assets ... etc .

It's not a myth in a market like forex where there are no assets, just obligations (contracts). Those are zero sum markets (negative sum after spread and any other transaction costs - including carry). By definition, there must be a financial loser to offset each winner. You can throw out any scenario of time frames and all that you like, but it all must add up to zero. Someone ends up losing.

When you bring in "utility" as Martinghoul as done, that's a different story. It can incorporate more than just the raw financials.
 
 
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