I'm a little confused here... can someone clarify that these are true statements... so basically, futures is a zero sums game... if there is a big gap between futures and cash... one will compensate for the other... I would think this would be in real time automatically done electronically... So does this mean, can everyone who is trading futures be winners considering that the loser could have actually purchased the "cash" stock which was automatically thrown into the futures pool... meaning, there does not need to be a loser in futures?
As I understand it, the futures market is zero sum (less transaction costs), whereas the stock market is not necessarily so. Theoretically, everyone can be making money via stocks, at least for a while. The guy you bought from may have bought it cheaper and the guy who sold to him may have bought the stock for even less when it was first issued. Potentially. However, in futures, if you are making money, then someone is losing. It may not necessarily be the guy on the other side of your trade who may simply have exited by selling to you. But it would then definitely be someone at some point before him because for every long there must be a short in futures. In order for you to be able to hold a long position in a futures market, then one or more people must individually or collectively be holding an equivalent short position. It is unlikely that both sides will exit at a profit.
what i'd like to know is that... could there be one specific futures contract which everyone is trading since there doesn't necessarily have to be losers trading futures (with in mind that the losers would be the cash stock traders)?
futures market in an of itself is zero sum there HAS to be the same amoung of money won and lost (absent commission) if you are talking about 2 markets taken together, that is obviously NOT the case. the cash market is not zero sum fwiw, a large %age of the volume in futures are done for hedging etc. those participants purpose is not to "win" money in futures. it is to hedge underlyings in other markets also, many (myself for instance) do a lot of spread trading (like long Ym and short NQ would be a spread), where money can be made based on narrowing or widening of spread. regardless, it is undeniable that in the futures market it is zero sum. a combination of the futures and cash market is NOT zero sum. simply put zero sum market and zero sum market combined = zero sum market zero sum market and nonzero sum market combined = nonzero sum market game theory 101
Given transaction costs, it is actually less than zero sum. I would suppose the ability to arb continuously without transaction costs might make your statement plausible. Of course, just like in basic Physics when you assumed there was no friction to solve a problem.... The simple answer is in reality no. Besides, I need money and so therefore someone needs to provide it. I didn't spends years in front of this silly machine to come out even. To everyone that donated the 6328 bux today, thank you very much! Zero sum, I don't think so...
Futures itself is a zero sum game. For every dollar made there has to be a dollar lost. What happens in the cash market is not important to the fact that futures are zero sum, and the futures market does not always reflect cash prices as accurately as you would expect. Every time you buy a contract someone else must sell it to you, and vice versa, so every dollar in profit you generate on the trade has to be a dollar that someone on the other side of the trade has lost.
I did...and while it is more complete of an explanation than mine, I don't believe I'm wrong...unless I am missing something. What is your assertion, that futures aren't zero sum, or that the cash market is?