"So, only when we trade real things like stocks or houses wealth can be created or lost and we have a non zero sum, but when we trade agreements without the actual transfer of the real thing wealth cannot be created and we have a zero sum? Agreements then have their own price independent of the real thing, so it means that in futures we trade agreements about the underlying issue, not the underlying issue. So, if I have somebody's agreement, then this somebody does not have this agreement and that makes him short and on the opposite side of my position?" um... basically yes. look at the cot reports, for instance. trading of agreements HAS to be zero sum because you can't have an agreement without two opposite POSITIONS otoh, you can exchange a good without there being two opposite POSITIONS. also, there are a finite number of goods (shares) but an INFINITE # of contracts. if tomorrow, open interest on the dow increases by 10,000 contracts, that means 10,000 additional two sided agreements with a net/gain loss of ZERO. but tomorrow, the only way there can be more SHARES of GE, is if there is a public offering of shares. the shares represent an EXACT portion of that thing - GE - the company. how people value it at any given moment is the democratic two way auction process of price discovery. if i sell you my house, that i bot for 300k , for 450 k., i am not now short 1 house. there is still one person long my house. and i';m out with a profit. if i buy an option to purchase a house, somebody else holds the paper to the other side of that agreement and they are necessasrily short. if, tomorrow we discover how to make a perfect clean fuel out of corn, and corn goes from it's current price to $50 a bushel, every person who owns CORN just gained a hyoooge amount of wealth. but the corn futures market cannot (net) gain a dime. cause for EVERY long positioon there is short positioon in that market (of course many people short corn FUTURES are long the underlying product in order to hedge their price, but WITHIN the futures market it is zero sum. but it is a fact that many use futures and options to hedge an underlying real world position and are not speculating. they are hedging a real product. if corn futures go up, their short goes down in value, but the corn in their silo goes up, so they are net even with where they were - a hedge. if corn prices fall, their short gains value concomitant to their silo'd corn losing value. net even (minus commissions, etc.). many people use futures and options this way. ) look at options. options are also agreements. if the market could not grow wealth, then the stock market would not be the proxy for the companies it represents. fortunately it is.
I asked you to provide an example where both the buyer and the seller of a stock benefit from their transaction. The specific transaction I mean and only that. Nothing external like the seller using his funds to purchase afterwards another stock or investing it in a profitable business or buying a home, etc. If you introduce external benefits that changes the nature of the game. You forget that transactions take place because the buyer and the seller have an opposite view of the fundamental value of a stock at the time of the transaction. The fundamental value is not known in advance otherwise there would be no transaction. If the seller is wrong about the fundamental value the buyer profits at his expense. "Wealth creation" changes fundamental values. It does not change the fact that these values exist but are uncertain at the time of the transaction. This uncertainty does not change the nature of the game, it is zero sum. Unless you can provide a specific example of both a buyer and a seller benefiting from a specific transaction you have no sound argument in favor of a positive sum game of stock trading. All you say is that there is wealth creation in the economy and stock market. This is a red herring. Ron
97 pages and still going strong! I'm going long 100 contracts on this thread, I see it hitting 1,000 pages over the next year or so, without reaching any conclusion! Anyone wants to take the other side so we can have a zero-sum game!
it's already reached a conclusion there are just some that don't understand math, or game theory and refuse to admit the truth refusal to admit 1+1=2 does not mean there is valid disagreement that 1+1=2 game theory was invented to describe a specific sort of system. the stock market does not meet the criteria. the futures market, absent commissions does.
the below is 100% irrelevant to the issue of zero sum also, the term "positive sum" is also irrelevant this is a binary thing. either a system is zero sum, or it isn't. whether or not a buyer and seller can both benefit is 100% irrelevant to the issue. zero sum is a description of a system. stock market does not meet that description. read a book. educate yourself. 1+1=2. hth ----I asked you to provide an example where both the buyer and the seller of a stock benefit from their transaction. The specific transaction I mean and only that. Nothing external like the seller using his funds to purchase afterwards another stock or investing it in a profitable business or buying a home, etc. If you introduce external benefits that changes the nature of the game. You forget that transactions take place because the buyer and the seller have an opposite view of the fundamental value of a stock at the time of the transaction. The fundamental value is not known in advance otherwise there would be no transaction. If the seller is wrong about the fundamental value the buyer profits at his expense. "Wealth creation" changes fundamental values. It does not change the fact that these values exist but are uncertain at the time of the transaction. This uncertainty does not change the nature of the game, it is zero sum. Unless you can provide a specific example of both a buyer and a seller benefiting from a specific transaction you have no sound argument in favor of a positive sum game of stock trading.
That's exactly my bet that those people will keep on arguing otherwise. The risk here is that "our" side will just stop posting, I know I'm not posting any comments here anymore, except for this "trade" nonsense...
And there are some who still do not understand the simple concept that WEALTH is not created out of thin air in the stock market. It has to come from outside sources such as the govt, FED or consumers. The fact remains that EVERY dollar made in the stock market has 2 come out of somebody elses pocket. There is no wealth tree that buys the stock from you, it is another enitity using their money and transferring it to you in exchange for the stock.If you really fail to understand this then I find it hard to believe you actually participate daily in trading any market.
You did not answer the question but I will go ahead and read a book or two. in the meantime you should read the following paper carefully, with special attention to section 1.2.3. http://www-rcf.usc.edu/~lharris/ACROBAT/Zerosum.pdf Defining profits and losses relative to some common benchmark of fundamental value is the most sensible thing to do in the case of stock trading and this immediately implies the game is zero sum. In case you disagree you should address your complaints to the author who is a professor of finance at USC and not to me. I'm just a trader. Ron
After the abolishment of the Gold Standard it is very hard to define wealth any longer. There is no clear benchmark of fundamental value. Ron
"Defining profits and losses relative to some common benchmark of fundamental value is the most sensible thing to do in the case of stock trading and this immediately implies the game is zero sum." fine. then quote me where this professor says the stock market is zero sum i'll stand by for this keen insight. (it's not)