Inescapable Truths

Doesn't wikipedia pretty much state that forex is a non-zero-sum game?

"Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated, and any of these will create a net gain or loss. Assuming the counterparties are acting rationally, any commercial exchange is a non-zero-sum activity, because each party must consider the goods it is receiving as being at least fractionally more valuable than the goods it is delivering. Economic exchanges must benefit both parties enough above the zero-sum such that each party can overcome its transaction costs."

That describes commercial transaction which is a pretty different thing. I bolded the important part. In FX transaction the value of goods (currency value + commission) exchanged always equals to zero (= zero sum).

In commercial exchange however the producer excepts positive sum value for his/her product/service (can be called profit margin).

I think one will need to define the "game" we discuss here in a very strict sense then. It can be discussed if the broker or exchange is an active participant in the game or just facilitate the game. Also counterparty risk (were everybody looses) seems to somehow defy the concept of zero sum.

In general I find it a bit difficult to view forex as a closed system.

zero-sum, less than zero-sum, commissions versus spread--this discussion seems to be a quibble over semantics.

For one, spread equals commission for a broker to facilitate trading. Call it what you want, but that's what it is.

The game is zero-sum for the traders and a simple winner for the brokers. This is because the brokers don't have to take the same risk that a trader does. Forex is zero sum for the trader because economic value is not created or diminished in the exchange of currencies. There is economic growth possible for a broker, though, through an increase in demand for retail trading. Brokers provide a service for a fee.

Supply and demand is based on expectations of a price change. Supply and demand doesn't really involve the spread unless the spread is so high as to overpower the expected profitability.

The game aspect of it lies much more with the trader than anyone else. Brokers try to take the game (the risk) out of it for them as much as possible. There's no risk involved in taking a spread regardless of whether a trader wins or loses. In other words, the only way to make money reliably is to be a broker.