derivatives are zero sum a greater system (a derivatives market aggregated with an equities market) is not here is how it works derivatives = zero sum market aggregated market (derivative market + equites market) =/= zero sum again, it is a structure of market issue the fact that an instrument traded in a derivatives market can be (and is) arbed by an instrument in a non zero sum market is 100% irrelevant to the individual market as to whether or not it is zero sum. again, it's a structural issue and again, explaining this to people who don't understand math, logic, or game theory gets old sigh...
iow, when u look at all markets that trade in the dow complex the DIA etf the underlying dow stocks (NYSE) DIA single stock futures YM futures big dow futures dow pit contract options on dow futures options on DIA etc. etc. as an aggregate market, that is clearly NOT zero sum but any of the individual derivatives markets are *(and have to be) zero sum. any of the equities markets are not. an aggregate that includes any non-zero sum market will necesasrily not be zero sum even if 4/5 of the markets in your "metamarket{" are zero sum it's not complicated. structure, structure, structure.
Hello ion, This is about FX, isn't it? Well FX trading suite traders who go for: 1) Calculated risks 2) High yielding profits 3) Sound principles 4) Strategies to rely 5) Clear entry and exit points, How does it sound? Are you into these, and then you should be making a hell lot of money from Forex...
I agree that trading is not a zero sum game. Trading is a minus sum game. Here is the basic math: The short and the long side both pay contest costs (vig aka B/A spreads, commissions and other fees/costs). Let's say one trader went short at 50 and another went long at 50 (same underlying at the same time) then the market moves to 60. The long winner wins 10 minus the contest costs - let's call that a total net credit of 8. The short loser loses the 10 PLUS the contest costs - let's call that a net debit of 12. Winner wins 8 and the loser loses 12 because the infrastructure costs must be paid. fwiw.
Hi Mark, Thanks for pointing it out... I guess I need to take responsibility - why my friends are not sharing their trading secrets with me... I guess it's not them, it's me... I've probably slowly turned into an ass along the journey... Time for some soul searching...
Whitster, I'm sorry I really don't have time for this... Instead of focusing on the definition of zero sum game... All you need to know is you have a lot more people to profit from than your speculator friends...
I have just caught up with this thread as it meanders it's way through zero sum games ..... quite fascinating really. To be honest I have never given the thing much thought other than to be aware that the cme matches a buyer to a seller per contract and therefore exits can be more dodgy than entries. One thing to be aware of is that a small number of traders account for the bulk of the trading each session. Someone, Brett I think, ran some figures on this, which I read, took note of, and promptly forgot, because I am constantly reminded of this in the T&S. Here is a question for you all regarding size (successful) traders. I equate size with success only on the assumption that no one would continue to trade size unprofitably. "Why is it that large orders can consistently fill to the long and short side within a couple of tics of each other?" Does this mean one is right and one is wrong in each individual case. Is every size order a hedge against cash. Are the traders looking at different frames. ie scalpers versus moc for example. Do they not care about trading as close as possible to the extreme tic. It always fascinates me to watch the T&S and see orders >100 flow in on both sides and then watch some one thump down 1000 long or 1500 short and still not turn the market. Now, I am more inclined to assume that anything over say 500 is a hedge marching to the beat of a different drum. Has anybody here compared >100 lot traders to sub 100 or say sub10 where it is fair to assume that the newbies live. What as any of this got to do with success. Well, quite a bit actually, because as people have mentioned here before; it is not the quantity of knowledge that makes you successful. No, it is not that at all. It is the small bit of knowledge that you retain and use over and over after you have discarded all the superfluous rest. However in order to gain this gem we go through the same painful process.
There are so many things going on with time and sales that I find it useless for forecasting direction beyond a tick or two. That said there are times that that little bit of knowledge combined with the DOM is pretty useful.
"Trading is a minus sum game" again, false. first of all, there is no such thing as a "minus sum game" according to game theory, but what you mean is that in futures - which is a zero sum game - if you INCLUDE commissions, more money is lost than won, since the exact amount of money won and lost on trade positions is (and has to be ) ZERO but when you add commissions, there is actually more money lost, since that is paid by both sides. the stock market is not a "minus sum game" or a zero sum game. again, if you don't understand this, then understand structure and read about game theory. absent commissions, more money can be won than lost in the stock market and less money can be won than lost in the stock market. thus it is not a zero sum game the definition of a zero sum game is that the EXACT (note: exact) same amount of money is won and lost. your gains come from somebody else's LOSSES. that is NOT true in the stock market. it is true of a poker game . derivatives markets are like a poker game. a poker game without a rake (home game) is a pure zero sum game. with the rake, it is what you refer to as a "minus sum game". iow, if you don't include the rake, it's zero sum. home games don't (usually) have a rake. pure zero sum game.