Retail forex is a new thing. It may end suddenly after begging currencies to a standard, something that is being talked recently. Thus, your statement is false and your argument as a result is unsound. Retail forex has been around for a finite time and thus it has winners and losers and more importantly: profits = losses to this day, i.e. zero-sum game, regardless of time. Do you think by adding a time variable you can alter the fact that profits are equal to losses or that when you lose the money goes to the guy or guys with an opposite position to yours? I agree the issue is irrelevant though as far as winning, I just said winning is more difficult in zero-sum games.
I can't see retail forex ending any time in the foreseeable future as it's far too lucrative for the brokers and marketmakers, therefore it doesn't have a finite lifespan. If the game doesn't have a finite lifespan then it's irrelevant to call it zero sum, in theory all participants could be winners indefinitely. Surely I don't need to go into detailed examples of Trader A sells to Trader B, Trader B sells to Trader C ad infinitum......it's possible for traders A, B, and C to all make money on their respective trades. It's a popular misconception that forex trading is in some way a competitive game of participant vs participant or that for every winner there must be a loser, it simply doesn't work like that......fortunately for me
That excellent post says it all. A very small group in any endeavor will rise to the top while everyone else toils desperately in search of the impossible dream. A few will make it, most will not.
Trader 1 sells to trader 2 at p2: profit = p2-p1 -> p2>p1 Trader 2 sells to trader 2 at p3: profit = p3-p2 -> p3>p2 Trader 3 sells to trader 4 at p4: profit = p4-p3 -> p4>p3 --------------------------------------------------------------------------- Trader n sells to trader n-1 at pn: profit = pn - p(n-1) ---> pn > p(n-1) Conclusion: pn > p(n-1) > ...pk...> p3>p2>p1 thus, traded price is a strictly monotonic function of trading transaction index. That would be nice, but it ain't so, since realized losses turn the game into zero-sum for a number of previous transactions. Since this will happen also in the future, i.e. no monotonic price functions exists in forex markets, by induction we conclude that the game is zero-sum. QED.
All very academically impressive I'm sure but it don't mean diddly to me, I'm a practical forex trader not a mathematical theorist If a game never ends it's immaterial whether it's potentially zero sum or not, it's totally irrelevant and has no effect on anything. Nevertheless even if speculative foreign exchange transactions (forex trading) were stopped tomorrow it wouldn't automatically follow that traders losses and gains would equal zero, in fact it's highly unlikely that they would. I can't actually see the purpose of the discussion as it has no relevance to how easy/difficult it is for newcomers to make money in forex (thread topic), there's more than enough debate about zero sum and forex if you google it.
For fun, let's imagine the game would end in, say, 6 months. End, no further retail FX. Maybe even the banks involvement. One world currency (biblical maniacs are free to comment). How would that change anyones strategy?
Hurray! I could give up this bad habit called trading and retire! Actually that's not true, I'd probably just find something else to trade
Not academic at all and not impressive. The basic error you committed, which is a practical empirical truth you denied, is that for trader A to open a long position in forex, someone has to take the opposite side. Forex involves transactions between counterparties, just like in futures. When A sells to B, A writes a gain or a loss., depending on whether his counteparty, A0, wrote a loss or a gain, respectively. This is basic. Suppose a new forex game starts Monday morning for currency pair ABCXYZ. At the start of the day, A0 sells to A, thus A0 goes short and A1 goes long. Then, A sells to B, B sells to C, etc. If at the end of the day, A ,B, and C all made money, A0 loses the same amount of money unless A0 bought from another trader B0 to close his position in the meantime, but B0 is now short and as a result, the gain of A, B, C equals the loss of A0 and B0, etc. ad (countable) infinitum.
Well its all very moot from a practical standpoint, but anyways: Some derivatives, like futures, are actually really zeros-sum games, in the sense, if you close all trades and cancel all orders - every thing will exactly net out to zero. Currencies are a cash instrument, like stocks (or cars, or what ever else trades physically in the 'real' world). Its not a closed zero-sum game like futures. For example: i give you 40K USD - you give me 200 GOOG, or i sell you a car for 50K USD, or u give me 100K EURs for 130K USDs. Its the same thing. You might argue that the whole economy is a zero-sum game, but that's even more of a pointless discussion.