Zero Sum Game???

Discussion in 'Trading' started by Swish, Dec 19, 2003.

  1. Swish


    For the life of me, I don't see why people are so committed to calling trading a "zero sum game"......

    Or "worse than zero sum" due to commissions, etc.

    If the market had a total fixed value, then yes, I would be convinced it is zero sum - BUT clearly it is not. Because of the longer term appreciating characteristic of the market, then (theoretically), a single share of stock could be historically owned by successive folks who each made money on their ownership - hence it's not zero sum.

    My gripe on the whole concept is naysayers who throw potshots at the daytrading industry.

    Has anyone ever seen a serious discussion of the zero sum game on this board, in a magazine, etc.????


  2. acrary


    I think "they" are referring to futures markets where for every long contract there is a offsetting short contract. When commissions are added in the net is a net loss for all participants.

    Stocks are not zero sum and has been talked to death on ET.
  3. Not quite sure about the futures markets for such commodities as gold and others!? :confused:
  4. Swish


    Appreciate the link!!
  5. I,of course agree, with the 'potshots' but, there is some validity to the "zero sum game" as it applies to trading the futures markets.

    For every winner there is a loser with big deal, just the way it is.

    With equities, both buyer and seller can actually "win" due to the fact of market appreciation and dividends. Historically the market will rise from 8-12 percent per year on average, and this combined with dividend payments can offset the the smaller trading losses.

    But, "what the heck else you gonna do?" "Get a job?" LOL

  6. stevebec


    Even the futures markets aren't necessarily a 0 sum game as a lot of the participants are using it as a way to hedge the physical ownership/purchase of the commodities, such as a farmer who shorts corn to hedge his crop. Even if corn skyrockets and the farmer takes a huge loss on his contracts, he make up for it with the physical delivery of his corn at the higher prices and ends up net 0, while the buyer of the contract makes out like a bandit, making the whole extended transaction net positive.
  7. Good point, I usually think of the index futures instinctually....sorry...

  8. pspr


    That's the only reason any of the futures markets exist. So the owner of the physical can hedge his risk. Traders are only allowed to play so there is liquidity and to take the other side of the hedge through their speculation.

  9. What about such "value" for example during the tulip bubble 350 years ago when the rare Semper Augustus flower was worth 6 000 florins approximately 1 million dollar in today's money :D ?

    You also forgot something : in stock market there is two markets in fact : the primary and secondary market, the secondary market drives the huge majority of liquidity but it creates no real value it's just papers that change from hands to hands and inflate by doing so: INFLATION is what it MEANS FACIAL VALUE only which must not be confused with REAL VALUE. The secondary market is like your old car that you would sell on Ebay, except that it's not possible to fool the people since a car is of real use whereas with papers you can fool them very easily : they just never study history. Every inflation of papers (bonds, etc.) have always finished in bankruptcy at the end of each generation ... when the people who retire need just to draw the money from the stock market but the real money has been pumped already and only the facial value maintains the illusion - but at the end to hide this pumping the only way is to crash the market so as to put the responsability on nobody but on so called "Natural Order". The facial value is just what is called economically the MARGINAL COST or VALUE that is to say the value or the cost of the LATEST exchanged item so it's not really representative of the real value which should be the AVERAGE since the Dow exists (Marginal cost / Average should have been taught to you in any economic course because it is the basis for calculating the optimal production of a factory or economy) : just average the Dow Jones and you will be much closer to what its real value is ... and that should happen at long term because never stock market has demonstrated to be able to maintain on an eternal plateau :D

    What if Irving Fisher the most famous economist of his time had known the persistency law (see since Levy discovered and demonstrated the law in 1939 only ? Would he had declared that "stock prices were not overinflated but, rather, had achieved a new, permanent plateau."

    "This Yale economist was an eccentric and colorful figure. When Irving Fisher wrote his 1892 dissertation, he constructed a remarkable machine equipped with pumps, wheels, levers and pipes in order to illustrate his price theory - see here for pictures of his draft and his first and second prototypes. Socially, he was an avid advocate of eugenics and health food diets. He made a fortune with his visible index card system - known today as the rolodex - and advocated the establishment of an 100% reserve requirement banking system His fortune was lost and his reputation was severely marred by the 1929 Wall Street Crash, when just days before the crash, he was reassuring investors that stock prices were not overinflated but, rather, had achieved a new, permanent plateau."

    #10     Dec 19, 2003