Zero Sum Or Not? Does It Matter?

The Leopard

Experienced member
1,877 1,020
Hopefully this might get an interesting discussion going.

Is trading a zero sum game?

What are the implications of this? Does it matter?

My own view on the zero sum question is yes and no, but it might be better to hear from some partisans before expanding on that.
 

ChocolateDigestive

Experienced member
1,153 281
my view is that it doesn't matter however it is very useful to think of trading as a zero sum game. Working out which participants make money how and why they go about it is very illuminating and you can form trading edges by thinking in this way.

ultimately winning traders take money from losing traders that is the main concept to grasp imo. arguing of the pounds/pence w/cost of trading is futile.
 

DionysusToast

Legendary member
5,963 1,501
Excellent idea....

http://www.trade2win.com/boards/general-trading-chat/85318-wall-street-casino-minus-sum-game.html
http://www.trade2win.com/boards/general-trading-chat/86726-minus-sum-game-mk-ii-derivatives.html

Where to focus first?

Forex?
Weather derivatives?

The latter tells you more about the true nature of the markets and the reason they really exist.

Oil Futures providing price stability? Or just allowing people to gamble so the house can skim off their GUARANTEED percentage?

It's minus sum - the house never loses. The trade facilitator always takes a cut. The winner wins less than the loser loses.
 
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DionysusToast

Legendary member
5,963 1,501
my view is that it doesn't matter however it is very useful to think of trading as a zero sum game. Working out which participants make money how and why they go about it is very illuminating and you can form trading edges by thinking in this way.

ultimately winning traders take money from losing traders that is the main concept to grasp imo. arguing of the pounds/pence w/cost of trading is futile.

Not really because the markets exist for the house, not the winners & losers.
 

ChocolateDigestive

Experienced member
1,153 281
Not really because the markets exist for the house, not the winners & losers.

whether markets exist for the house or not is a different debate and it might actually be something we agree on.

I was just wondering if I buy 500 future contracts and sell them for a profit of $30,000 where does that $30,000 come from? please do tell :)
 

Big Stones

Junior member
13 91
How can trading be zero sum with spreads, slippage etc, etc.
Matters lots to me trading (badly) off teh smalls.
 

scose-no-doubt

Veteren member
4,630 954
whether markets exist for the house or not is a different debate and it might actually be something we agree on.

I was just wondering if I buy 500 future contracts and sell them for a profit of $30,000 where does that $30,000 come from? please do tell :)

Say I buy a miner who strikes gold and the share price takes off and I sell my shares for a profit... who looses?
 
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Rhody Trader

Senior member
2,620 266
I was just wondering if I buy 500 future contracts and sell them for a profit of $30,000 where does that $30,000 come from? please do tell :)

Comes from the chap who's short on the other side of your long. In the futures market (and retail spot forex) it is an absolute zero sum (negative some factoring in spreads and transaction costs). No one can win without there being an equal loser. In non-"contract" markets like equities you can get into a debate, but not here.
 
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Rhody Trader

Senior member
2,620 266
Say I buy a miner who strikes gold and the share price takes off and I sell my shares for a profit... who loses?

This is why I would argue stocks are not zero sum. Because you're exchange an asset (fractional ownership of a company in this case) rather than matching liabilities (as in futures), one can gain without another losing.
 

the hare

Senior member
2,949 1,283
Say I buy a miner who strikes gold and the share price takes off and I sell my shares for a profit... who loses?

Lets assume you sell your shares to teh hare for $1M

The very next day, the miner calls teh hare to inform him that the seam of gold that he was previously mining has run dry.

Teh hare has just paid $1M to inherit the liabilities of an empty mine. The miner digs and digs, but alas no more gold was ever found. That trade would definitely go in the losses column, wouldn't you say I'd lost and you'd gained ?
 

The Leopard

Experienced member
1,877 1,020
Comes from the chap who's short on the other side of your long. In the futures market (and retail spot forex) it is an absolute zero sum (negative some factoring in spreads and transaction costs). No one can win without there being an equal loser. In non-"contract" markets like equities you can get into a debate, but not here.

This is why I would argue stocks are not zero sum. Because you're exchange an asset (fractional ownership of a company in this case) rather than matching liabilities (as in futures), one can gain without another losing.

Do you think the participant's point of view comes into this debate at all? Does perception matter?

And do you think that a cash gain from other participants is the only gain available by participating in the futures or forex markets? Is it possible to gain by losing? Are there any participants who are in fact hoping to lose?
 

scose-no-doubt

Veteren member
4,630 954
Are there any participants who are in fact hoping to lose?

Maybe external real money managers who use a relative pittance want to push down price before bidding the sh1t out of something?

Insiders who sell/buy a little in the hope of adding to/offloading their holdings ata better price?

People who look to push price in one instrument to benefit from overall net exposure?

:confused:
 

The Leopard

Experienced member
1,877 1,020
Maybe external real money managers who use a relative pittance want to push down price before bidding the sh1t out of something?

Insiders who sell/buy a little in the hope of adding to/offloading their holdings ata better price?

People who look to push price in one instrument to benefit from overall net exposure?

:confused:

Maybe. Are all participants (or end users) speculating in the market, or are they using it for other purposes?
 

barjon

Legendary member
10,705 1,809
Comes from the chap who's short on the other side of your long. In the futures market (and retail spot forex) it is an absolute zero sum (negative some factoring in spreads and transaction costs). No one can win without there being an equal loser. In non-"contract" markets like equities you can get into a debate, but not here.

In the equity market it depends on money flow so it's not really zero-sum, albeit that it's an overall positive sum game whilst the money is flowing in and an overall negative sum game when it's flowing out - only at a final accounting would it become zero sum. It's a bit like passing the parcel, some poor soul catches it when the music stops, but everyone is smiling whilst it's playing.
 
 
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