mk, They are paying with cash. I said MARKET VALUES are not tied to anything. It's only based on what is thought to be the going rate for the asset in the market. It doesn't mean squat. If there is no market then the value is zero. Lets say I start a company with $200 and I take 100 shs public at $1/sh, and I own the other 100 shs. I have brokers start pumping my crappy stock and soon after people are willing to pay $5/sh for stock in my company because cramer says its going to the sky and joe shmo doesn't give a crap becasue he sees his scottrade account going up and up in market value. The MV of my stock is now $500. Then i go and take out a loan against my stock for $350. The bank says "Hey the market value of the assets he has is $500 so sure we can give him the $350, if he doesn't pay we'll just take the stock." Now i have $350 in CASH. Then I walk away from it all with $350 in my pocket and don't look back. I profited $150.
Sell a house for 200k in a 100k neighbourhood. Other houses become worth 200k. 10 houses is 1 million extra wealth, based upon 100k money. Stocks are the same. They create (paper) wealth and its not exactly a zero sum game like futures.
The equity market is clearly not zero sum. It can only be so if there are an equal number of longs and shorts. Of course in general there are far more shares held long than short. As a result, it's "more than zero sum" when price is rising, and "less than zero sum" when it's falling. Aggregate wealth of market participants increases in the former case and decreases in the latter. Now, as others have mentioned, futures are zero sum (and remember that this includes the cut to the broker, clearing firm, etc.)
I think you are talking about market capitalization of a company. It doesn't seem like you understand what the term "zero sum game" means. It's a different context.
incredible that such a simple concept has caused so much debate, as if some of you refuse to believe the simplicty of the math is somehow wrong because you want to believe it so... pity. Definition Zero-sum game Situation or interaction in which one participant's gains result only from another's equivalent losses. Which means, quite simply, there is a winner in a trade, and a loser in a trade. The sum of the gain and the proportionally equal loss is zero. +1-1=0 "It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another. " Gordon Gekko Wall Street
Hi Tryk, maybe you or your good ol' friend Gekko can tell me where the 'another's equivalent losses' is in following example exactly as I am not able to locate: t[0]: AAPL priced at $220 while one mill. shares outstanding - market value of $220mm all owned by you. t[1]: I am bidding for one AAPL $2,200 and you sell (some call that trading). Market value of the mill shares? Right: 2.2bill. Which splits as follows: $2,200 for me and the rest for you alone. Now help: Where is the loss? Help me. Pleeease. I think you would not ask where the win is, wouldnt you? Keep it going. MK
Bolimomo, >It doesn't seem like you understand what the term "zero sum game" means. It's a different context. No, it is not a different context. It is exactly as failed_trad3r said. MK
Comment on this: Who is the biggest "short" of IBm or GE? Answer: IBM and GE. If you think about it, when a company issues stock, it is basically shorting the stock to you...pieces of paper....so you actually do start off, and end up, with equal number of shares long and short. They just use the words "issued and outstanding" Don