LOL IT'S ACTUALLY NEGATIVE SUM BECAUSE YOUR BROKERS TAKE A RAKE OF ALL YOUR TRANSACTIONS LOL
Nobody should Lose Money this Week
- Thread starter WD40
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The real fool is the one who wrote the article in that web site. How can you expect a journalist to know anything about such a complicated subject anyways?
The fallacy in what they think it is a zero-sum fallacy is that money is not defined the same way as in table games such as poker. In real world trading and investing there are things like opportunity cost, time value of money and longer term evaluation of performance.
When measuring performance against a benchmark, which is the way to do it according to serious academics, any gains realized from buying an IPO stock are losses of the issuer of the stock who exchanges future gains for hot cash needed to run the business.
In this case, the gain of the stock buyer during an IPO is exactly equal to the loss of the seller plus any commissions and fees.
Whoever denies that stock trading is a zero-sum game can only do that if he cannot count. Again, the key point is that money has a different meaning in trading, it also includes the value of securities traded and opportunity cost.
Ron
Amen to that!
I trade Futures and was up well over $8,000 today on one contract!
Equating opportunity cost and actual loss is like comparing apples and oranges. It may or may not be a theoretically valid observation, but it is a separate argument. In the futures market, you need not stretch the dots by making interfruit comparisons to arrive at zero sum (minus the vigorish). As I understand it, for zero sum to exist, every dollar that is gained by a position in one direction is actually lost in real accounting terms by a position in the opposite direction at a specific snapshot in time.
Kindly read my post on the previous page:
http://www.elitetrader.com/vb/showthread.php?s=&postid=1545438#post1545438
Of course, I could be entirely wrong.
I wonder how Cramer's AAPL shorts are doing?
Not all equations in math are of the form y = ax+b. Futures trading (and Forex for that purpose) is a TRIVIAL case of zero-sum game. But not every case has to be a trivial case. Stock trading is shown to be easily converted to a zero-sum game without altering its basic nature. When a game can be converted to zero-sum without altering its nature IT IS zero-sum.
For example, for recreational stock traders one can assert that such game is positive sum because one can introduce a variable representing an external benefit (adrenaline generation). However, this alters the basic nature of the game because the concept of recreation is introduced. It is not a purely money game any longer.
In the case of futures trading, one can assert that speculators absorb the risk of commercial hedgers and thus assist them in wealth creation activities. It becomes a positive sum game although its nature changes and it is not any longer a pure activity of mark-to-market profit/losses but involves other benefits.
Things are not that simple. They depend on perspective and assumptions. However, IMO it is correct to say that financial trading of any sort is a zero-sum game when performance is measured with respect to benchmark index. This is the point.
Ron
Absolutely incorrect. The seller did not lose anything other than opportunity cost. Opportunity cost can only be defined if one knows what the seller did with the money. In any event, both parties made money. Also some stocks pay dividends and dividends can only be zero sum if all shorts=longs which never happens.
I agree (of course!)!!
In addition, when a company buys back their shares, how is this zero sum? It isn't.
I have a detailed university study that explains and addresses all that has been brought up. Unfortunately I can't find it, but I'll keep looking. Meanwhile, where the heck is whitster when you need him?
st
Can we stop turning every thread into a zero-sum argument? 
Quote from blumartian:
Can we stop turning every thread into a zero-sum argument?
Party pooper!!!!
st