Zero sum game

G

Guest36985

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Hello all this is my first thread.
I'm getting older and becoming more cantankerous, so things which I would have let slip previously seem to get on my nerves now, and, in the great tradition of a grumpy old man I'm putting the internet to right one 'fact' at a time. ;)

I have heard a lot of talk about trading being a zero sum game. It is NOT!

If you are basing your trading strategy around you winning by someone else losing then don't.

Markets, shares and indices go UP. New money is pored into them month after month by new people (fish, bait, suckers) who have spent years saving a pot of money and now want to lose it quickly, and pension funds who must invest a certain percentage of their new money into equities.
There is a bigger pie every month for you (and your counter-party) to take a slice of, and your trading strategy should take this into account.

As an example of the NON zero sum game, if I buy a share from Peter at £10 and sell it to Paul at £20 I make £10 but NO ONE LOSES MONEY! Its just Mr Market making up a 'different' price.
The 'game' in question is a much larger one beyond mere share and index prices.
I hope that's cleared it up, so there wont be any need for questions will there? :p

How does this affect your trading strategy I hear you ask, well your trading coin toss is biased towards the 'buy' side, and so over time you should have more than 50% of your trades being calls.

Good trading all, and dont forget Everyone can be a winner.
Pass the Werther's original and my pipe dear.
 
G

Guest36985

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Let's hope DT doesn't see this thread! He believes that trading (derivatives anyway, not stocks necessarily), is worse than a zero sum game - it's a minus sum game: ....

That's just a losers mentality. ;)
You can read some good articles on T2W to improve your psychological attitude to trading. :innocent:
 

tar

Legendary member
10,443 1,313
That's just a losers mentality. ;)
You can read some good articles on T2W to improve your psychological attitude to trading. :innocent:

I agree with you on stocks game , i gave a similar example in the past , its like properties prices they can go up and up and buyers at higher prices aren't necessarily considered losers .
However i think derivatives trading is a different game because there's an expiration date for every contract and there's no product to exchange - unless you intend to take delivery and own the commodity or currency - , so most derivatives traders/investors are just betting on prices for hedging/speculation purposes ...
 
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G

Guest36985

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I agree with you on stocks game , i gave a similar example in the past , its like properties prices they can go up and up and buyers at higher prices aren't necessarily considered losers .
However i think derivatives trading is a different game because there's an expiration date for every contract and there's no product to exchange - unless you intend to take delivery and own the commodity or currency - , so most derivatives traders/investors are just betting on prices for hedging/speculation purposes ...

Agree on derivatives, there is a locked in time premium which erodes, and is significantly bigger than a spread. Time is your friend on equities, its your enemy on derivatives.
 
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12WBT

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Is that you Victor.
 

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WklyOptions

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Agree on derivatives, there is a locked in time premium which erodes, and is significantly bigger than a spread. Time is your friend on equities, its your enemy on derivatives.

Professional options traders usually will make dynamic adjustments during the trading campaigns to allow:

1. Exploit and capture the options extrinsic time value by selling premium.
2. Maintain price direction bias in preferred/desired manner by adjusting position deltas primarily.

So even in options-based trading, it is not really a "zero sum game". A buyer or seller of options can easily offset and execute rolls/adjustments as necessary. Of course, a couple of "downside" consequences can include:

3. Increase capital requirements into the open campaign.
4. Increase the duration of the campaign.

It is always a matter of "trade-offs".

Regards,

WklyOptions
 
 
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