trader99: PLUS, the BIGGEST misconception the public has is that trading is gambling. They think it's the same. It's NOT! And they think it's all "luck" that one wins. They know nothing about odds, having an "edge" , discipline, cutting losses, letting winners run, psychology. There's a WHOLE LOT that goes into trading. Bingo. What I found fascinating upon first entering my "trader" days (as opposed to viewing myself as a long term investor)... were how certain seemingly innocuous comments from our Master Interviews on how people react to finding out one is a trader. There's many negative perceptions and they affect how you view yourself. Another tangent on this topic is how you view yourself, are you worthy of success, especially when the world tells you taking money out of the market is somehow morally unethical. So it's quite prudent to come up with a pat answer (or two) and size up the person asking the question. Protect yourself some negative comments. You just don't need it.
What the public doesn't realize is that Nasdaq MM's,NYSE specialists,floor futures and options traders,and not to mention the countless number of upstairs traders,all daytrade.
Yep. It's a HUGE hypocripsy and illusion for Wall St to condescence on the public for daytrading when they themselves(part of the Establishment) are by FAR the BIGGEST DAYTRADERS around. Having been in the i.b./a.m. environment, I keep telling people that specialists/MMs are basically the biggest daytraders of all time. And people still miss the point...
Personally I don't subscribe to zero sum. Maybe in a suspended instant of time it is, but overall, it cannot be. Stocks and their derivatives are pieces of companies that make money and those that don't make money cease to exist and are replaced by new ones. In the aggregate and over time the market is growing in value. To be zero sum the underlying assets would have to remain at the same value at all times. Just like houses trade for higher prices now than they did 100 years ago. I just thought you would like to hear my opinion even though you didn't ask for it. Cheers
I think maybe this term originated in an era prior to derivatives...Nowadays with all the hedging going on who the heck knows the true exposure of anyone to any specific event, etc...many people have pointed out the flaws of labelling this game as zero sum, mainly because it assumes that buyers and sellers are entering the markets at the same exact time, for the same exact purpose and for the same exact duration...Which, of course, we know is not true
Yeah, I know where you are coming from. I think 'strictly" equities markets are not zero sum though some people think so. Equities can actually be a POSITIVE sum game. Everyone can "win" in the long run as stock markets continues to go up(have a long-term positive bias). But, derivatives, by their very definition, has to be a zero-sum game. Because they are basically speculative contracts and not pieces of companies like stocks. So, for every futures winner, there's a futures loser. For every options winner, there's an options losers in theory.
Yes I think you are right about futures. Over the life span of a contract (3 mths) I guess it is 0 sum. Say I buy 1000 QQQ's today and 1 min later they are - .20, the other side of my trade is profitable, but if I hold them for 30 years, I will also be profitable. That's + + and the only way that can happen is that overall, the underlying increases in value. So I think you are right, derivatives are more likely to be 0 sum because they are time bound.
The theory that money is never created or destroyed in the stock market does not hold up. How about when a stock is halted and open either up or down? Where is the transfer of money? That is a creation/destruction of money. When a stock is trading $5 and is halted and then opens at $1 for trading where did the $4 go? Simply disappeared, no transfer, no zero sum, everyone loses.
What people don't understand is that trading is a "profession" and as with any profession, you need the proper tools. I'm sure many people know of someone who tried to be a daytrader and lost money or have read an article about those people. What they don't know is how ill-equipped most people are when they pursue this profession. Many people have (or used to) a dial-up internet connection, single monitor PC, and a web-browser based trading account with no phone support and call themselves daytraders. They justify that they know what they are doing because they took a 1 week course on it and read a couple of books. Then down the road, they're out of money and out of trading. Well, let's look at another profession, say a surgeon. A surgeon has 4 years of college, 3 years of medical school, 2 years as a intern (working 80 hour weeks). He uses the latest equipment: medicines, laser scalpels, etc. He has a support staff of nurses, anesthesiologist, assistants, etc. People go to the surgeon to go under the knife and usually expect to come out alive. Suppose a surgeon took a 1 week course in surgery, read a couple books on it, and watched surgery being done on the medical channel. Now he goes out and gets a scalpal, a guerney, and rents a room big enough to operate on. How many patients do you think will survive his surgery? People need to realize that day trading is a profession and as such, it takes training, proper equipment and support, and most important time in the saddle. The initial heyday of daytrading ran from something like 1994-2000, all riding a booming market. That's not even the same amount of time a surgeon is in school and internship. This comparison can be done with practically any profession: CPA's: Need to work with CPA's to understand tax law Programmers: Need to spend time actually programming and seeing how computers work before they belt out million line programs. Sure, lot's of people wrote the "Hello World" program in their first programming class, but that doesn't mean they can write an operating system. Just like people can trade 100 share lots, but just because they make a buck on a trade doesn't mean they are ready to step up to 1000 share lots. Chefs: Again, time in the saddle. Maybe they learn at a school or maybe through trial and error after many meals made at home, but before they're professionals, they've put in a lot of time. So with daytraders, when they start out, they need time in the saddle. Sorry that I may have digressed, but I think the lack of professionalism in the industry led to the bad rep daytrading got.
ok, I'll throw my two cents in about the zero sum theory. I don't think that the stock market is really zero sum because some companies out there really make operating profits and have retained earnings and pay dividends and go up over long periods of time, and most people who buy stocks are doing it for investment and not short term trading. A good proof of this is that only a small fraction of the total float for large cap stocks turns over in any given day. I know that there are churning hedge funds out there, but they are a drop in the bucket compared to Fidelity Magellan. If in a theoretical world different from our own, EVERY market participant was required by law to buy something every day and sell it before the close, ending each day completely flat, with no investment whatsoever, then yes, it would be a zero sum game with the stock brokerages acting as bookie, and the Dow Jones Industrial average would close every day at ZERO. But that's not how it really is.