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Is Forex a ZERO Sum game?

  • #21
  • May 4, 2007 9:37pm May 4, 2007 9:37pm
there is money forgerry, computer error, few digit round up
sometimes somebody burn their money, melt it for the nickle/silver/gold.
the bank print new money , bla bla bla,
  • #22
  • Dec 20, 2014 12:28pm Dec 20, 2014 12:28pm
I have participated in this discussion of commodities being a zero sum game for a number of years and have always contended that it is not such. It is zero sum if you add in the consumers but it is not without them. Imagine that there are only three people in the world. A consumer, a producer and a distributor. The producer generates the commodity for a cost of $1 and sells it, through a commodity contract which is ultimately delivered. The producer sells for $2 and makes $1. Over a period of time the price of the commodity rises to $3. The distributor then sells his delivered commodity to the consumer for $3, making a profit of $1. Over the duration of the transactions the producer makes $1, the distributor makes $1. The consumer pays a higher price and could be considered the loser to balance the scales of a zero sum game. However, the participants in the commodity transaction both made money. Not exactly a zero sum game.
  • #23
  • Dec 22, 2014 7:01am Dec 22, 2014 7:01am
I think it's very difficult to consider FX in terms of game theory with all of its complexity.
One should notice, that for example not every "player" follow the same rules.
For example, banks can make non- speclulative transactions and we can't say that they lost or won.

And speaking about only retail investors, they make up to about 20% of the whole FX spot market
(https://www.ecb.europa.eu/paym/group...bebe1c60d92ce4)
Therefore it is possible that all of them win or loose simultanously.
Check CaterpillarFX
  • #24
  • Dec 24, 2014 12:13am Dec 24, 2014 12:13am
Supply Vs. Demand. I don't see why not...
  • #25
  • Dec 25, 2014 6:12pm Dec 25, 2014 6:12pm
Quoting abedewi
I ve a question regarding the win lose game in forex. Is forex a zero sum game? i.e. is the winning of some trader in one part of the world drives the presence of a losing trader some where else? in other words, hypothetically speaking, can all traders win at a single given time? or this is impossible?
This is not a zero sum game and on the question of can all traders win at the same time, nope..
  • #26
  • Feb 5, 2015 4:10am Feb 5, 2015 4:10am
Technically Forex isn't even a zero-sum game, it's actually a negative-sum game due to the cost of trading, aka spread, commissions.

The statement in the quote seems correct to me - most Forex transactions are not made for speculation. Just remember that you'll be fighting the institutional traders for that slice of profit.

Most retail traders will always be losers anyway, so the whole thing is a bit theoretical.
  • #27
  • Feb 5, 2015 8:58am Feb 5, 2015 8:58am
Yes, it IS a negative sum game. For the traders. For those who are brokers? Who knows. There would have to be profit in it for them to keep it running.
  • #28
  • Feb 5, 2015 11:23am Feb 5, 2015 11:23am
Spreads and commissions are a cost of doing business and should be segregated from the value of the 'trade'. Saying "Forex" is zero-sum is far to broad a statement as Forex is not the game. The 'game' is the 'trade', and each trade is a new unique game within itself. This is what is absolutely zero-sum, the trade. What you lose/make, the other player(s) make/lose respectively, very simple. Nothing is created or destroyed in the process. It is simply always zero. What you pay in spread or commission is from a 'separate' pool of funds, the fact that it is taken from your account and bundled up in your stats/figures as an effect of a trade is irrelevant. If you win, you pay for it as an addition however, your profits happen to cover it instead of debiting your account further. If you lose, it is also deducted from your account, along with the value of your loss, it's fixed either way, but no currency was created or destroyed in the process. There is no room for 'twisting' facts surrounding the game to make it anything other than zero sum. The trade has a value from start to finish, and it is always cancelled out, returned to zero, albeit at the end of the game, redistributed amongst the players.

DD
  • #29
  • Feb 17, 2015 2:34pm Feb 17, 2015 2:34pm
Well generally, in order for one to make money in Forex, another has to lose. After all that is how the trading positions are closed, otherwise they could remain open eternally. Nonetheless, we seem to forget the aspect of inflation and the point at which the trade was opened. For instance if I opened my position yesterday and choose to close it today at a profit, another person might be willing to open a similar position with view to closing it the next day or after a couple of days. Therefore, both have the potential to make profits. SO in that sense, we cannot say that Forex Trading is indeed a Zero-sum game.
  • #30
  • Feb 17, 2015 2:47pm Feb 17, 2015 2:47pm
It's a game.
  • #31
  • Feb 17, 2015 11:03pm Feb 17, 2015 11:03pm
the problem is it is indeed a zero sum game

Eg 1: In the hands of dishonest brokers. for example you tripled account after so much hard work trading, and he comes along and voids (confiscates) your profits on the basis of "arbitrage" or "taking advantage of lagging prices" or "account too active" etc (among the many excuses I seen in forums). It means he transferred your profits to himself.

Eg 2 : Price moves based on liquidity. And it is indeed true for every winner there has to be a loser be it a individual, institution etc. This is the way tick prices updates - there has to be a buyer for every seller for it to work.

Eg 3: Depending on how u see it, forex is actually a LOSING game for most retail traders. Lets see, some brokers will charge u funding/withdrawal etc fees. In addition to commission and spreads. And still u face glitches, black swan event (like SNB), slippage, requotes etc which may cause losses even if u have sound strategy. or worst case broker goes belly up like alpari uk and u now have to wait years for the $$$ people with smaller sums will be covered by FSCS but bigger sums will have to bear losses
  • #32
  • Feb 19, 2015 11:07am Feb 19, 2015 11:07am
Quoting MaryAnne
the problem is it is indeed a zero sum game Eg 1: In the hands of dishonest brokers. for example you tripled account after so much hard work trading, and he comes along and voids (confiscates) your profits on the basis of "arbitrage" or "taking advantage of lagging prices" or "account too active" etc (among the many excuses I seen in forums). It means he transferred your profits to himself. Eg 2 : Price moves based on liquidity. And it is indeed true for every winner there has to be a loser be it a individual, institution etc. This is the way tick...
I think making a profit from a trade does not necessarily mean that the trader at the other end of the trade made a loss. Obviously when you close the position, the other person open a position, which means they could still profit from their position depending on how the trade closes for them. So Ideally, I think time plays a crucial role here along with inflation/recession.
  • #33
  • Feb 19, 2015 11:21am Feb 19, 2015 11:21am
Quoting moonshot
{quote} I think making a profit from a trade does not necessarily mean that the trader at the other end of the trade made a loss. Obviously when you close the position, the other person open a position, which means they could still profit from their position depending on how the trade closes for them. So Ideally, I think time plays a crucial role here along with inflation/recession.
You cant. Based on research
When u gain those pips, someone on the other end has to lose them.

You need buyer and seller to get price tick (contract). So if the seller wins shorts, the buyer on other side has to lose those pips.
  • #34
  • Feb 22, 2015 6:01pm Feb 22, 2015 6:01pm
Quoting moonshot
{quote} I think making a profit from a trade does not necessarily mean that the trader at the other end of the trade made a loss. Obviously when you close the position, the other person open a position, which means they could still profit from their position depending on how the trade closes for them. So Ideally, I think time plays a crucial role here along with inflation/recession.
Game theory is complex. I studied it over 4 years at university and still to this day struggle with some of the intricacies and complexities of the mathematics and psychology behind the subject. It is very difficult to discuss and argue such a subject on an internet forum. That being said, the nature of the zero sum game and a Forex trade is very simple. There are rules in game theory, and the very definition of a 'zero-sum' game is that within a game, one's gain is equivalent to another's loss, i.e the value of the game never changes, nothing is created or destroyed during the game, and the end result is always zero. There may be room for discussion surrounding the length of the game, and the players involved at any given time, but one thing remains clear. The Forex trade always returns to zero, it has to balance every time a trade closes because nothing is created or destroyed. Even if the player who takes your closing position goes on to win, somebody had to lose to pay for your win. There is no argument there. For you to win $1 someone else has to loose $1 and visa versa. This is ALWAYS true in Forex, and is what makes Forex zero sum.

Forget the nonsense (in respect of game theory and zero sum games) of brokers, spreads, commissions, interest, inflation etc, etc, and look at the fundamentals of the 'GAME', as these other factors are external forces that effect each individual player differently depending on how they have chosen to do business, and they are not a result of the game itself. You may use these factors to determine the psychology of your opponent(s) to better your chances of succeeding, but they do not impact the sum of the game at all.
  • #35
  • Feb 25, 2015 9:27pm Feb 25, 2015 9:27pm
Bullshit. It's a mind game, but not zero sum. If you now how to work with your head you will get your profit. But it takes time. So many traders were thinking, that they will get billion dollars in first week)) It's hard to lose, but after some time you will like the taste of the gain)
  • #36
  • Feb 26, 2015 3:07pm Feb 26, 2015 3:07pm
Based on this definition via investopedia, there is no way forex trading would qualify for a zero sum game. In my opinion, only gambling ticks the boxes of a zero sum game.
  • #37
  • Feb 26, 2015 6:11pm Feb 26, 2015 6:11pm
FX is about timing.
Its what you do with the time that counts.
Someone may lose in a minute and gain over an hour, lose over a day and gain over a week etc.
Time slicing it would make it a zero sub game but the fact is the game is continuous
  • #38
  • Feb 27, 2015 10:29am Feb 27, 2015 10:29am
Yes forex is a zero sum game in my opinion
  • #39
  • Feb 27, 2015 3:47pm Feb 27, 2015 3:47pm
Quoting lasty
FX is about timing. Its what you do with the time that counts. Someone may lose in a minute and gain over an hour, lose over a day and gain over a week etc. Time slicing it would make it a zero sub game but the fact is the game is continuous
Exactly my view. Only Gambling can be considered a zero sum game. With Forex Trading, everyone can make a profit and a loss as well. The difference comes in terms of how many losing/winning trades do you close, and by how much do you gain/lose?
  • #40
  • Feb 27, 2015 5:03pm Feb 27, 2015 5:03pm
Too many people misunderstanding the basic concept of a zero sum game here. It has nothing to do with gambling specifically, or mind games, or time, or even money, It has everything to do with the exchange that takes place at the core of the trade. Moonshot, you used investopedia as a reference to a definition of a zero sum game; "A situation in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero". It baffles me how you cannot immediately see that this is so very true of a forex trade. Why is it only true of gambling? So in a poker game, there is one pot, and that gets used up in its entirely at the end of a game, and the sum of all gains and losses in that game is equal to zero, thus zero sum. In a forex trade, the sum of all gains and losses from a trade are equal to zero also. You lose a dollar, someone else gains a dollar, you gain a dollar, someone else looses a dollar, thus equal to zero, thus zero sum. This part is so very simple, i'm surprised it is even a debate. Imagine a forex market where all that exisited was just you holding £1 and X holding $2. The £ is worth twice the $. You buy the $2 with your £1 from X. Now you have $2 and X has £1. Time passes and now £1 is worth only $1. You sell $1 to X for £1. Now you hold $1 and £1, and X holds $1. You have gained $1, X has lost $1. The sum of all losses and gains is equal to ZERO. There were no extra £'s or $'s created during the process... this is the definition of ZERO SUM.

If it still is unclear, tell me how a forex trade passes the criteria of any non-zero sum game? Can you ever establish an 'optimal solution' for both yourself and the person(s) that will take the other side of your position? The answer is of course not, because for one of you to gain, the other must lose.
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