It is amazing how much missunderstanding is among stocktraders about the very instrument they are trading. Only 2 people mentioned so far 2 very important characteristics of stocks that options and futures don't have, but it changes the logic of it, when we are examining if it is a zero sum game or not: 1. Dividends. 2. Ownership. Dividens means that even if no stocks change hands, but there is dividend paid to the stockholders, there is wealth created by the underlying company. So clearly, here we are not talking about a closed system (just buyers and sellers), because money is coming in from the outside. So you can throw out the zero sum game right now. Ownership itself doesn't really have an effect on the zero sum problem, although it must be noted that when the company has a positive value, the stockprice can not go much below a certain value, otherwise the shares would be bought up and the company sold with a profit. In zero sum games, the value of the traded part of the game usually can go to zero. Options although we think of them as trading vehicles, originally were created for insurance purposes, thus the problem of a wasting asset although exists, but doesn't bother the insurance buyer. They are zero or negative games, depending on how many transaction occurs. Futures are zero sum games without counting comissions and slippage, otherwise they are sligthly negative games...
Nicolas Darvas at the beginning he thought it's about ecomony, serious business, wealth creation; and he lost. Until he started to find out the truth; it's just The Other Las Vegas then he started to make money.
pekelo. you are absolutely right to go further. futures and options are merely agreements. you don't own anything underlying. futures is a binding contract, and options are a discretionary contract (assuming you bought them as opposed to writing them), but they are just that - contracts, not "stuff". a stock is "stuff". one share of AAPL = a certain % of the company Apple Computers. A single stock futures contract on AAPL, or a call option of AAPL does not mean you own anything. it means you have a contract in reference to AAPL. and necessarily, somebody has a countering contract - hence, the zero sum nature. otoh, if u own a share of apple, it does not follow that there is an opposing position for that share, and as long as people think the company Apple is worth more than Zero, so will your stock.
bitrend, in the case of TRADING you are right. in the case of investing, i would say no. traders don't trade stocks or futures or options. they really trade(play) OTHER traders. that's it. investors put money into companies, as represented by stocks. the former is a bit different than the latter. i do both, in different accounts, and with different rules. they may use the same basic vehicles, and the same general goal (sell for more than you buy), but they are different
Would you sell or buy the starving people of Sudan? And what would happen to the US deficit if the population of China went up by 1 billion?
im not sure what your point is. and fwiw, any student of politics knows that most famines are caused by political actions, not by lack of food. no matter how much wealth is created, when u have dictators intentionally starving their people (for political means), wealth don't mean squat. there is way more than enuf food to feed every person on earth comfortably. the problem is not lack of food. and again, compare the levels of starvation worldwide TODAY vs. 100 yrs ago. wealth has been created. for pete's sake. in the US, we actually pay farmers NOT to grow (see: many farm programs), and the #1 health problem among the poor is OBESITY for the first time in history, the poor are FATTER than the rich
The funny thing is I think the poster that started this thread had a completely wrong definition of "Zero Sum Game". A zero sum game means that unlike casino gambling trading has no house edge!!! Although we pay commissions it is completely different because we are all playing with the same chance of success long or short.
ssptrading im an the original poster..... please i would like if you could inform me of what i think the definition of zero sum means.... i would appreciate that and if you really think that everyone in the market has the same chance of making money you really have no clue how it works......cause that would be like saying you have the same chance of winning a poker tournament that phil helmouth or daniel negranue or doyle brunson have........
that for every buyer there's a seller and the sum of the 2 transactions equals to zero: eg: buyer makes $1000 - seller lose $1000 --------------------- 0