Is it possible to earn on a life working on forex
- Thread starter jesse2008
- Start date
how is forex not zero sum?
do you want to pretend were not just playing a slightly sophisticated shell game here?
there is no win-win, no win-neutral outcome, and no real value being created, unless you consider transferring money from inexperienced traders to the dealer and the experienced traders over time to be some sort of social service.
you are betting against other speculators. there are some hedgers in the market, but "providing liquidity" one mini lot at a time is meaningless.
do you want to pretend were not just playing a slightly sophisticated shell game here?
there is no win-win, no win-neutral outcome, and no real value being created, unless you consider transferring money from inexperienced traders to the dealer and the experienced traders over time to be some sort of social service.
you are betting against other speculators. there are some hedgers in the market, but "providing liquidity" one mini lot at a time is meaningless.
I guess it depends on your definition of zero-sum but the widely accepted definition is "....a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.... Situations where participants can all gain or suffer together, are referred to as non-zero-sum." Forex is therefore non zero-sum.
There doesn't have to be a loser for every winner, the 'pot' is not finite as marketmakers do not keep everything in-house. If they did it may be zero-sum (in fact wouldn't it be negative sum due to spread?), but then there would be a limit to the size, direction, and number of bets which could be made at any one time due to a kind of in-house liquidity.
In practice we're not betting against anyone, there is no competition, we're simply speculating that one currency will appreciate against another and buying or selling accordingly. The marketmaker is there to facilitate our bet, he can either assume the risk and take the other side of it, or offset his aggregate in the market which is exactly the way most marketmakers operate.
yeah, if the dealer hedges you, he is passing the risk to somebody else. They can pass it along as well untill somebody, somewhere takes the other side of your position, and in the meantime while they are hedging you off they have the other side of your position.
How is this not zero sum? If you win you are taking somebody elses money who bet the opposite of you.
Its not my mindset when I trade, but its basically whats going on.
How is this not zero sum? If you win you are taking somebody elses money who bet the opposite of you.
Its not my mindset when I trade, but its basically whats going on.
Ummmm, no
I was short eur/usd on Friday, you were on the other side of my trade and long, we both made money on our respective trades, who lost?
somebody took the other side of all of our fills. Maybe it wasnt a guy somewhere with a name and a dog who paid us in that scenario, but in aggregate somebody lost what we gained.
And we just do our best to make it our broker. and our broker will try to make their liquidity take the losing risk.
And we just do our best to make it our broker. and our broker will try to make their liquidity take the losing risk.
How do we know that, for all we know they may also have gained, and the counterparty to their trades may also have gained etc etc ad infinitum.....it's just a never-ending stream of exchanging (buying and selling) currencies whose comparative values change, hence the opportunity to speculate.
Imagine everyone had to stop trading right now and liquidate their open trades, would everyones gains and losses equal zero (or less than zero)? No. Therefore it's not zero sum
This is just my take on it by the way, unless someone can come up with some logical and/or mathematical reason why it is zero (or negative) sum of course!