Does your conclusion extend to physical delivery? Also, the qualifier "tend to" leaves open a small crack. Was that intentional?
The date is 31st Dec 2005, the futures trade is ER2 (Russell 2000). For all those who traded this will know that the futures is not zero sum. Ask the Nybot. The date is 31st Dec 2005, the futures trade is YM (Dow Jones). For all those who traded this will know that the futures in not zero sum. Unless you placed actual futures trades with a view to arbitrage, you will not know. Try trading spreads between indexes like the Dow and Ftse. You may have complete pricing in or gamma, but this only proves non zero sum and that the equation needs constant adjusting with spreads and different trading instruments.
Nice try. When you trade a spread you make money in one contract. The person/people that are on the other side of that trade lose money. You lose money on the other leg, and the person/people on the other side of that trade make money. The same goes for arbitrage. Here is an example of how it could not be zero sum. You own one contract someone else is short that contract. When the price goes up one tick, you make $30 and the other person only loses $25 (on that trade...forget about what other positions they have..it's irrelevant). That's just not the way contracts are designed.
I think nutsneal has a good explanation....and the reason for "tend to" is because of non cash expiration (which applies to deliverable commodity futures, referring to your other (good) question). Don
Your assuming that an exact equal position is taken at the exact equal time on the exact equal instrument that is being traded. Where does "auction" come into this. What do you understand by "open outcry." And how is this validated?
you still don't get it it does not matter if it is auction or electronic these contracts are transferred all they are is agreements. with a price agreed upon by both sides. there are necessarily two holders of every future contract. one person MUST be short for every person who is long one side necessarily offsets the other they have no "thing" attached to them (like a stock does), since they are purely agreements only MSFT can issue a share of MSFT, since a share of MSFT is literally a percentage of the company - MSFT otoh, a single stock future in MSFT is merely an agreement. it is a contract setting a price, between a long holder and a short holder of the same contract there is no net difference between the two, hence it is zero sum stocks are different. they are not zero sum, since there can be (and obviously is) a net sum, whether or positive or negative assume there are 10 millions shares of stock in the entire stock market the value of that market can (to paraphrase JP Morgan) "fluctuate" assume there are 10 million contracts of MSFT single stock futures outstanding the value of that market cannopt fluctuate. it is zero. everybody who is long 1 contract has a counterpart who is short one contract i use SSF's because they are easier examples. this holds true for any futures contract tho.
Yes, if you're talking about a futures contract, that's what I'm "assuming." When I buy one futures contract, someone else sells one futures contract at the exact time in the exact same instrument. Maybe I bought 10 futures contracts from 10 different sellers. Fine. If the price goes up, I make 10 times what each of them loses, but if you sum the longs and subtract the sum of the shorts the net is zero. Every wonder why open interest is only one number. Why isn't there an open interest for longs and an open interest for shorts? You know why? Because the numbers are equal!