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Is trading a zero sum game?

  • #21
  • May 25, 2010 7:54am May 25, 2010 7:54am
Quoting Pollux
No, that quote contradicts you. How can someone have a loss if I make profit? I make profit because they are willing to buy, let's say, candies from me. I win, they win. We both have what we wanted. Zero sum is where you gain, while the other losses.
mmm guess i have to repeat myself since u missed it.

You can make anything non-zero-sum by ignoring variables(or players) in the game.

Many players in zero sum games engage in win-win deals. That doesn't mean someone else in the game doesn't lose.
  • #22
  • May 25, 2010 7:55am May 25, 2010 7:55am
Quoting nubcake
you should be a politician, or magician.

one country gives another bananas. banana count of country A is exactly less that amount given, and the amount in country B is exactly more the amount received.

then they do the same exercise with apples.

were there any extra bananas or apples materialize or disappear? no. for this aspect then zero-sum is the answer.

i won't be replying to this thread further at least for a bit. i don't want my 300th post to be in a pointless zero-sum argument, so enjoy y'all.
I think my way of answering/arguing was quite polite so I would kindly ask you to be the same . It's not about materializing or disappearance of something. Zero-sum does not refer to "where do the money go?" It refers to a trade in which someone loses while the other wins (exactly the same amount the counterparty loses). Money, as I said are goods. You are willing to give them because you need something else more than you need money. If I purchase a car that I want to, then it's not a zero-sum game. Yes, the car is equal with x amount of money. So I give something that values X to receive something else that values X. (it's not like I'd be giving 100$ to receive 100$, because i don't change x for x, instead, something that values X for something else that values x). In order to be a zero-sum game someone has to lose and someone has to win. If we both win/lose, then it's not. You say that if I change bananas on apples I don't win anything because 1apple=1 banana. But it's not true. I don't sell bananas for bananas. I sell them for apples. Why? Because it 's the object that satisfies my needs the most at that time. And that's the economy: all the activities by which the man succeeds in satisfying his needs. If in a trade both participants could satisfy their needs without causing losses to the other, then it's not a zero-sum game. Yes, I give a goat for a lamb. Both have given away to something in order to get something else. If we add them up=0. But it's not about the number of transaction, the goods involved. It's about my needs. And here I have +. This is the aim of a trade.
  • #23
  • May 25, 2010 7:59am May 25, 2010 7:59am
A simplified version of what most people view as a zero sum game is as follows: Assume two brothers have a tradition where they give each other $100 on their birthdays every year. The net effect every year is "zero sum" because they are essentially trading that $100 bill every year.

However, an experienced FX trader does not see trading as a zero sum game because in effect, the clever trader can trick the market into thinking he has a birthday every day of the month...and to make things worse....that same trader is not recognizing the other trader's birthdays at all. So, in effect, the clever and experienced trader is seeing accumulation from month to month rather than a zero sum.
  • #24
  • May 25, 2010 8:02am May 25, 2010 8:02am
Quoting Troikaone1
However, an experienced FX trader does not see trading as a zero sum game because in effect, the clever trader can trick the market into thinking he has a birthday every day of the month...and to make things worse....that same trader is not recognizing the other trader's birthdays at all. So, in effect, the clever and experienced trader is seeing accumulation from month to month rather than a zero sum.
But where is he getting the $100 from?

Answer: Another trader (or set of traders) who loses $100.

"experienced Trader" +$100
Bad Trader A -$50
Bad Trader B - $50
_____________________________
Sum total: $0 (minus commissions)
  • #25
  • May 25, 2010 8:03am May 25, 2010 8:03am
Quoting Craig
Zzzzz....
  • #26
  • May 25, 2010 8:07am May 25, 2010 8:07am
maybe repetition is the key to getting the simple idea through


most "non zero sum" games come to that result by eliminating certain costs, players or variables.

One of the posters was right in his argument that the question was flawed, similar to the popular debate of the plane on the treadmill.

Like the plane debate, this one has 3 types of ppl arguing over the facts

1) people who focus on the word market(plane)
2) people who focus on the word zero-sum(treadmill)
3) people with no clue, but pretend to be experts

If we define the market in it's narrowest constraints(only forex), sure it's not zero sum. But that's just because value slips in and out of the forex market into other markets. And that's how naysayers in the first category would argue their case. Which isn't wrong. They just kick out certain concepts that simplify the question. Certainly loses a few points, but definately not a failing grade.

Similarly if we define the market as everything that's connected to the forex market, we should eventually end up with a zero sum game when the equation is put through enough recursion. But that also assumes the original meaning of "market" in it's original context.

The fault lies with the question in both cases. Sadly, pollux, u belong to category 3, and the fault lies solely with you. You flip flop between the two extremes and create fallacies where there are obviously none.
  • #27
  • May 25, 2010 8:11am May 25, 2010 8:11am
Quoting InfinitySL
But where is he getting the $100 from?

Answer: Another trader (or set of traders) who loses $100.

"experienced Trader" +$100
Bad Trader A -$50
Bad Trader B - $50
_____________________________
Sum total: $0 (minus commissions)
It depends on what perspective you view as zero sum. The "experienced trader" sees accumulation. If you were to draw a circle and within that circle you have the daily volume of the FX market of $4 trillion...then it is true that the net effect on a daily basis is zero...because what goes out of one person's account goes into another person's account. That's just a simple material balance (from an engineering perspective)....that's just basic accounting. From that perspective it is "zero sum" but only from an accounting standpoint.....what's wrong with that?
  • #28
  • May 25, 2010 8:29am May 25, 2010 8:29am
Quoting Craig
Zzzzz....


Nubcake, this thread was started to give people a place to thrash this out and keep other threads free for topic relevant discussion. I chose to make this question as vague as possible so that people can direct members of their threads here and not need to split hairs.

Personally I couldn't care less whether it is or not. I only care that I am sticking to my trading plan, constantly reviewing it and of course making money as I am sure you are!!

Happy trading everyone!
  • #29
  • May 25, 2010 8:31am May 25, 2010 8:31am
No, is not.
  • #30
  • May 25, 2010 8:36am May 25, 2010 8:36am
Quoting deathbait

If we define the market in it's narrowest constraints(only forex), sure it's not zero sum. But that's just because value slips in and out of the forex market into other markets. And that's how naysayers in the first category would argue their case. Which isn't wrong. They just kick out certain concepts that simplify the question. Certainly loses a few points, but definately not a failing grade.
I don't pretend to be an expert.

The first example was the trade between a speculator who wants to buy euros and a guy who wants to go to the USA and needs $. How can this be a zero-sum, knowing that zero sum means losses=gains, when nobody lost anything?

I buy his euros, he goes to New York, in the meantime I make 1000$. When I decide to close my long an American decides to go visit Greece. Why is this a zero-sum? In such situation either you'd have to be stupid enough to change 10$ on 10$ (which is a non-sense) or you're gains should be someone's else loss. Can you tell me who, what lost here?
  • #31
  • May 25, 2010 8:42am May 25, 2010 8:42am
Quoting Craig
Zzzzz....
The dream will never die
  • #32
  • May 25, 2010 9:17am May 25, 2010 9:17am
Not to repeat what I said earlier, but a game requires players. If you sell Euros to go on a vacation to NY, you're not playing a game you're just planning a vacation and not looking at currency risk/reward dynamics. When you trade apples for bananas you're not planning on holding bananas to maturity or "investing in bananas" -- you just want something to eat, there is no winner and loser (unless you bought rotten bananas).

The concept of a zero sum game revolves around people betting against each other. I think Exxon's going up, so i buy it, you think it's going down, so you short it -- one person wins what the other player loses. Someone who sells Exxon to go on vacation in Europe is taking his $ and leaving the game, so to try to apply the zero sum game analagy/logic to him is pointless.

Anyway, that's my take on things.
  • #33
  • May 25, 2010 9:26am May 25, 2010 9:26am
a better explanation would be:

he is indeed losing money buying it from you and watching it tank while on vacation.

Just like you're losing money holding on to your dollars if it tanks, even if you are a housewife who never intended to change it into foreign currency.

again, open your mind to see more than a small set of players. even a simple trade like u selling euros to the tourist involves at least 4 players.

1) you
2) him
3) person you bought euros from
4) person he sells the euros for(spending the money)
  • #34
  • May 25, 2010 9:31am May 25, 2010 9:31am
Quoting InfinitySL

Anyway, that's my take on things.
And you are right. But the question was: "is trading a zero-sum?" I shared my point of view regarding this matter providing arguments for which I don't consider to be that. I've also said that in a pure speculative environment (stock exchange) we have to deal a zero-sum situation. But Forex is not only speculations. It often implies a lot of people leaving the game. What does guarantee me that the currency I obtain from one in exchange to other, hoping for profits, comes from another speculator and not from just a "passer-by" to our game, so that I can say it's a zero-sum game? In stock exchange market you do have this certitude. But not in Forex.
  • #35
  • May 25, 2010 9:34am May 25, 2010 9:34am
Quoting deathbait
a better explanation would be:

he is indeed losing money buying it from you and watching it tank while on vacation.
He doesn't lose any money. His purpose wasn't speculation. He wanted to have dollars instead of euros and that's what he got. He won't be going on vacation thinking : "I should have waited a little bit more. Maybe I would have got a better rate". So he doesn't lose the profit I make because he just exchanged money on other currency and then spent them.
  • #36
  • May 25, 2010 9:40am May 25, 2010 9:40am
ok last attempt to make you see this

he loses money buying your euros when it tanks. It doesn't matter that he's happy to lose the money. He loses money. That's all game theory is concerned about.

You can throw cash off the balcony tonight if you want to. Doesn't matter if it makes you happy. You still lost money doing it.
  • #37
  • May 25, 2010 9:41am May 25, 2010 9:41am
Quoting Pollux
But the question was: "is trading a zero-sum?"
Indeed, that's why in my first response (way back when) i split trading into a number of different categories...Pure zero sum games and grey areas where it is not a purely zero-sum situation.

At the end of the day though, i'm not sure what (if anything) resolving this question would do to making any of us better traders/investors/ players in the game of life... I.e. what are the implications if it is or if it isn't -- i.e. does it matter one way or the other?

That's why so many people are posting: ZZZzzzzz....
  • #38
  • May 25, 2010 9:48am May 25, 2010 9:48am
Quoting deathbait
he loses money buying your dollars when it tanks.
How can you say you lose something if your loss didn't materialize in any way? What does he lose? He has euros, wants dollars. He sells euros, gets dollars. He didn't lose anything in this trade. Oh..if he waited he would have had a better rate, true. But that is a different story. For him, the trade is closed. It has neither a profit, nor a loss. I am not talking about hypothetical situations as it could lead to a lot of philosophy, but about concrete situations.
  • #39
  • May 25, 2010 11:28am May 25, 2010 11:28am
Quoting InfinitySL
Indeed, that's why in my first response (way back when) i split trading into a number of different categories...Pure zero sum games and grey areas where it is not a purely zero-sum situation.

At the end of the day though, i'm not sure what (if anything) resolving this question would do to making any of us better traders/investors/ players in the game of life... I.e. what are the implications if it is or if it isn't -- i.e. does it matter one way or the other?

That's why so many people are posting: ZZZzzzzz....
Good point. I don't think it matters if a conclusive or resolute answer is found to this question. If there is, then it would only be a matter of time until a better one came along. Unfortunately traders come to believe that they're investors, which is tragic because the underlying asset we trade (created by investors playing an entirely different game) all but guarantee a real loss to our accounts in-the-end.

In other words, traders realize that a time will come when they can't cover their transaction costs. When the interest payment for the underlying asset exceeds their ability to exchange enough of it, to pay it. For all those who are posting and and and here are basically telling me about the intergenerational historicity of our lot as traders, playing a game we haven't, won't and can't win by trading alone.

Like children we all know on some level that finally we're not creators but imitators, evaluators and beggars. That we're beholden to our parents/investors, the creators of assets, in order to be in business. We think it's in the plan, strategy, style, system, methodology, model, analysis or technique. That's fine. Let the kids play. Someday, when they grow-up, they'll become creators. Someday they'll build real estate and businesses with commodities and yes, paper assets. Someday they'll donate to charities. Someday they'll leave a legacy. Someday they'll live according to their own personal legend.

But not today. Not when it's zero-sum. Not when there's any interest left to go around. And they sleep, fight or ignore each other.
  • #40
  • May 25, 2010 10:46pm May 25, 2010 10:46pm
Quoting Pollux
How can you say you lose something if your loss didn't materialize in any way? What does he lose? He has euros, wants dollars. He sells euros, gets dollars. He didn't lose anything in this trade. Oh..if he waited he would have had a better rate, true. But that is a different story. For him, the trade is closed. It has neither a profit, nor a loss. I am not talking about hypothetical situations as it could lead to a lot of philosophy, but about concrete situations.
i find myself with some time on my hands, so i'll try to explain this...AGAIN

He lost money on the deal because he holds euros while it tanked. Doesn't matter AT ALL that he got what he wanted. The forex market is partially filled with companies who hedge their currency risks in the forex market. Make no mistake, they're losing money doing it, but do it anyway as an insurance, a hedge. They come out with what they want, and they pay a price. That doesn't mean they aren't contributing to the game. As long as you hold cash, you're in the game.

To further dumb down the explanation with your tourist analogy, said tourist is holding euros when the price tanks. If he decides not to spend the euros, he loses money when he comes back and changes it back to USD. He HAS lost money. Ok, assuming you'll argue that he didn't lose money in the forex exchange if he spent it in greece. But that's not true.

Especially illustrated when we assume he brought a finite amount of euros, let's say 1000 euros to greece. If we assume he would have spent 1000 euros at the exchange rate you sold to him, then when euro crashes, he finds himself having to spend MORE than 1000 euros in greece for the same amount of goods. DUCY?

actually, don't bother replying if you can't see why. It would simply mean there's no way anyone can convince you.
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