No, it's not a zero-sum game. To begin with, the laws of thermodynamics do not apply to financial markets. Second, this is not cutting cards but trading. There is no finite supply of contracts or shares or whatever. There is no finite supply of traders. There is no finite supply of dollars or whatever. Yes, one person can lose while another wins. They can also both lose. They can also both win. There need not be an equal win for every loss. All of which is I assume off-topic. Those who are interested can google "zero sum fallacy".
Yes, but If I buy the contract and the price rises, now SOMEONE ELSE must pay me. So yes we both made money, but it is still a zero sum game, for each winner there is a corresponding loser. Anyway.
You're correct on how the money in my example is distributed between each party, but I think our difference in perception is highlighted by the fact that you've emphasized 'taken'. The company gladly paid the cost of their un-materialized gain to me in exchange for the 'service' of me holding the risk which they didn't want. The point I was trying to make is that they aren't a loser here. The company produced goods from raw materials and we are both sharing in the benefits. This is how I see markets. The losers are a small part of the picture, it's nowhere near zero-sum to me. We use our time, talents, and resources to produce goods and services, and many share in the fruits of the labor. Trading is just one way for individuals to take part in the process. Perhaps this is a slightly unique view of the process we're taking part in, but hopefully I've been able to elaborate it a bit further with additional clarity.
And so the price continues to rise and the buyer sells it to somebody else. You both make money. There is no corresponding loser unless all the components are placed in a closed system. The financial markets are not a closed system.
Given these concurrent threads on edges, I have to wonder how many people are actually doing the necessary research and testing to find one. Just sayin'
Zero-sum game is based on the gain/loss of funds shifting from one party to another. Your assertion that they gladly accepted that loss to curtail their risk is understandable, but takes the gain/loss to the realm of the emotional state of the participants. A zen master might not care one hoot whether the futures he bought or sold for whatever reason lost or gained in value. He's emotionally detached and unconcerned. This doesn't mean there was no shifting of those gains or losses from one party to another. The account value did decrease (or failed to increase) for one party and gained (or failed to decrease) for another. Whether the participants were detached from the outcome has nothing to do with the shifting of wealth. Gringo p.s Lets get back to the real topic which was related to edge.
Arbitrary claim here. You need a minimum SAS of +0.1 to have an edge. SAS == 4*k*max[ 0, E ]*PF*min[ 1, N/mant ] , where SAS is the System Achievement Score, k is the full Kelly fraction, E is the expectation, PF is the profit factor (see below), N is the number of trades in the performance evaluation, mant is the minimum acceptable number of trades. PF is the ratio of the gain total to the absolute value of the loss total. PF == sum[ max[ 0, Ri ] ]_i=1toN / sum[ max[ 0, -Ri ] ]_i=1toN Ri is the return (%) of the i'th trade. OK, I've donned my asbestos armor. Flame away.
I'll have to think about this one. I would assume though that an open system probably isn't zero-sum. It would either be a positive-sum or negative sum based on net funds coming in or going out. But this is going to take some thinking to clarify even to myself. The individual group of transactions may remain zero-sum but the system may not remain zero-sum because of not being closed. So the discrepancy that's causing this furor is a difference is semantics. Your definition of zero-sum is focused on the entire system, while most of us have been arguing and giving explanations based on a group of transactions. Although these transactions successfully indicate the zero-sumness of those transactions, they fail to see that in an open system a net shift in the game might take place altering the zero-sumness of the net system itself. Gringo Edit: Sorry kut2k2. Couldn't resist.