Got into a discussion with someone, he says forex is inherently a losing game

Thanks, but there's no explanation necessary. I'm not asking if the stock market is a zero sum game. I know definitively that it is not. Here are some quick references:

http://www.fool.com/news/foth/2000/foth000912.htm
http://www.investopedia.com/terms/z/zero-sumgame.asp
http://www.investmentintelligencer.c...ading_is_.html

Notice in the last link that there is an important point made: The gross return of all traders in a market must equal the market return.

So there is an important distinction between the financial return of the overall market and the aggregate return of the traders in that market. In other words, the market sets the gross level of return. The traders then fight amongst themselves for their share of that return.

Let's say that the NYSE will gain 10% this year. Once you factor in that 10% gain as a baseline, all trading activity on the NYSE becomes a zero-sum game. If one trader made more than 10%, then some other trader must have made less than 10%. But all of the traders in aggregate still made 10%. As a whole, they all made money, because the market itself rose and thus it was not a zero-sum game.

It is a standard tenet of economics that stock markets tend to create wealth. They can only do this because they are not zero-sum games.

Another way to look at it is that long positions push the price upward and short positions push it downward. In forex, every long position, by definition, is accompanied by a short position. You can't go long unless someone else is willing to go short. That's why it's a zero-sum game.

In the stock market, a long position need not be accompanied by a short position. In fact, there are generally NEVER as many short positions on stocks as there are long positions.

In stocks, you can't buy (go long) unless someone else sells. But when that person sells, he is not going short. He is simply abdicating that position. There is a huge difference between shorting a stock and selling a stock.

No contradiction. No one need lose. There are certainly examples where a stock does in fact crash after a long run and those "holding the bag" lose, but this does not make it a zero-sum game and it is not a given that those holding the shares at the top lose.

Commodity prices are set by only a small percentage of the overall commodity holders. This is because most people holding a commodity (like stocks are real estate) are neither buying nor selling. They're just sitting there. So the whole market for that commodity is determined by the small percentage of people who actively want to trade the commodity.

Once the price rises, if a huge percentage of the legacy shareholders decide to cash out in a brief period of time, this will in turn put negative pressure on the price and it might fall - maybe, precipitously. But this doesn't have to happen. The price can also remain relatively steady - maybe for years - or, of course, it could start rising again.

If the price remains steady, it is true that new investors will not realize any gains, but they will also not realize any losses (minus commissions). Meanwhile, the initial investors have experienced massive gains. This is why stock markets are not zero-sum games.

to be honest, i've come to think that it's best to have an intermarket view of things, stocks are connected to currencies, bonds, gold, etc etc.

Where, prey tell, does this mythical 10% imbeded return that traders fight over come from exactly? Company Dividends? The SEC? God?

Can you explain to me what would happen if monday morning EVERY owner of EVERY stock on the exchange tried to sell their holdings? What would happen to the prices of stocks on the exchange?

trading stocks is not a zero sum game

The expected return on any stock is greater than zero. Otherwise no one would buy stocks. Think about it.

Whether forex is... because you're dealing with currency pairs, if one currency appreciates, others must depreciate.

just my 2 cents

The older I get the less motivation I seem to have to write....

http://www.forexfactory.com/showthre...ock#post186513

Read that and just consider it my response to this thread. If you still want to debate, I'm down.

In the sense that the FX mkt or any Futures mkt is a zero game (meaning it neglects commissions and slippage),

then,

the Stock market is a Zero sum game too.

What Darkstar is saying as an explanation to your point of everyone jumping on the bandwagon in a roaring bull mkt is, that, someone is left holding the empty pail at the end.

Ive always thought that "most" of us have seen only the bull mkt from 1981 till now, the US has not seen a 10 20 year bear run in 30 years, but its there, always there... round the corner.

My point being, this current 30 year bull mkt has disillusioned many at different times, about stocks in general, me too.

The bottom line is that FOREX is a market set aside for pure speculation. The stock market is an investment vehicle. Two different objectives!!

that, would be a mistake. Ty for your posts.

LOL! Dude, the stock market is a mechanism that allows the underlying companies to raise capital. Period. The idea that it was designed to help you save for retirement is nothing more then the sales pitch that gets you to give these companies your money.

I never advocated using the stock market as a means for retirement savings and so. All I'm saying is that the stock market is generally considered an investment vehicle. In other words, if you "invest" $100 per month in Ford stock, your "investment" may go up or down....who knows. If you put $100 per month in the FOREX spot market going long EURO every month..if it goes in your favor...fine....but if it goes against you; you will get a nice margin call. This is why one vehicle is an investment (stock market) and the other is for speculators. Personally, I am a FOREX daytrader and I love the volatility that it brings. So go ahead and go long EURO every month with about $1000 worth of leverage and then let me know if you are see how well you are able to sleep at night!

okies just a heads-up y'all... this line of thought is only going to end in tears. why you ask? because past experience suggests that everyone seems to have their own version of zero-sum / negative-sum / blah blah. i've seen it before. you need to come to a point of acceptance of terminology else it's all just p---ing in the wind in the meantime.

these topics hurt, so, so much. and in the end so little is gained, if anything :/

Think about it again. The purpose of the forex market is to facilitate currency transactions, such as business transactions or reserves. The purpose of the stock market for an investor is speculation (an 'investor' may or may not be investing, depending on definition, but is almost certainly speculating).

Ask him to consider the possibility that the players aren't equally skilled. He may then suggest that a retail trader can't expect to compete with the highly capitalised and resourced institutions, but that's another topic, and he's already displayed his lack of knowledge on this topic, so I wouldn't expect a debate there to go any better.

Stocks are NOT inherently "safer" than currencies. Companies can go bankrupt and their stocks go to zero. Picking individual stocks also isn't as easy as portrayed on Schwab commercials - the research required in fact is more than required for forex. I never buy individual stocks, I just buy a index mutual fund with low managers' fees.

Some people buy "safe" stocks like utilities and then collect dividends - well, you can do that for currencies as well. It's called a carry trade. And the carry trade will pay you more than stock dividends.

If you want to TRADE , forget stocks - the leverage is too low (only 2:1 and the stockbroker charges interest since you are borrowing money to buy stocks on margin). Also there are a bunch a silly rules to discourage short-selling. Stockbrokers only want people to buy , not sell . For traders, nothing beats the forex!

IIRC you can get 4:1 but thats irrelevant. Whats also important is execution, someone I worked with was trading citi and was in the trade for 3 hours waiting to get filled (exit), hell I remember waiting 20 minutes to get filled and by that time, something came out filled and went against me (yet hit profit multiple times in those 20 minutes) with FX unless your trading extremely large lots you don't have to wait more then 30 sec, if that.
As stated before though, any form of trading or typical investment can be viewed as zero sum. I actually went to the beginning of that thread posted and they were discussing long term investment though, maybe thats where there was a misunderstanding or misinformation.

I hear that alot, FX traders are not skilled enough and fx is for unskilled people etc. Stocks are more accesable and you hear more about the stock market then anything. I dont think it has anything to do with less skill in the FX market, there can be a lack of skill and possibly more so in the stock market aswell.

I also just saw the original posters reply (p6 IIRC) Ive seen the 95% stat thrown around in all markets. As for successful traders Soros is one and there is also a thread on here that lists them

Originally Posted by Troikaone1 http://cdn.forexfactory.com/images/buttons/viewpost.gif
The bottom line is that FOREX is a market set aside for pure speculation. The stock market is an investment vehicle. Two different objectives!!


pure nonsense - for years "the little guy" couldn't even trade the forex. The foreign exchange exists primarily for banks and large corporations to effect currency transactions. The stock market in contrast was explicitly set up for individuals to invest /speculate in companies. In fact, companies sell stock to raise capital in return for partial ownership of the company and a "cut" of whatever profits the company make earn. You obviously understand neither the forex nor the stock market. Take a economics class and you'll learn these things. Then you won't sound so ignorant.

hell I remember waiting 20 minutes to get filled and by that time, something came out filled and went against me (yet hit profit multiple times in those 20 minutes) with FX unless your trading extremely large lots you don't have to wait more then 30 sec, if that.


Andy,

Boy, that was a lousy fill! I hope you read that broker the riot act! You should really raise a fuss with that stockbroker . The stock market claims to have great execution, but that's obviously not really true. Something similar happened to me once when I used to trade futures - I got so mad I closed my account ( that was with First American Discount Group).

This was with a prop shop a few months ago. Citi had and still has highest daily volume, but unless your trading high volume your self your not gonna get filled. I figured I would give it a try, left within the first week(execution wasn't the only reason).

The vast majority of participants in both markets are unskilled. Many people don't seem to realise that a lot of action in the markets isn't primarily for the purpose of making a profitable trade.

Everyone has access to Forex but it is not for everyone. I agree that is a losing game but only for 90% that aren't ready for it.

On the rest 10%, you have one guy out of ten that will make money and walk with it, the other 9 guys are Forex brokers.

But with the right strategy you should be able to build a fortune in 2 years.

Its all about the pips...

If you're an individual and want to trade intra-day or short-term swings you will go with forex, options or futures. Stocks for an individual is something you buy and sell every few years at most every few months.
The best use for forex on any position is to keep it under 1 year(like soros when he's successful).
With stocks it is at least 5 to 10 years like buffet.
Of course you may find exceptions for both, but that is the general idea.
This is not an economics history lesson, or "what is that market meant to be?".
It is a practical answer from an individual trading professional.