DislikedYour spot on about the futures markets, but the stock market from a capital gains perspective is absolutly a zero sum game. Dividends are the ONLY factor that tip it towards positive sum. ...
I can tell you have given this some thought and I'd be happy to explain it more explicitly if your interested, but I'm guessing with some additional consideration you can figure it out on your own.Ignored
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.
DislikedThis is a contradiction... Even with your confidence game explination, at the height of the market, whoever is holding the stock is going to take the losses that offset everyone elses gain. Someone still loses, it just might not happen on the same day.Ignored
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.