Noob question concerning orders in forex/futures

[Pluralsight]

I read that both in forex/futures when you enter an order, if you are in the trade winning 50$, another trader is losing 50$. Is there always this pairing of your orders being done?

Also if for example you buy corn futures 1 contract, and you are paired up with another trader who is selling, and you start winning, and the other trader just closes his position but you stay in the trade, potentially winning even more, then whose loss is my gain?

 

[Xela]

I read that both in forex/futures when you enter an order, if you are in the trade winning 50$, another trader is losing 50$.

It's not quite that simple (even discounting the fact that a broker or two are making a dollar or two along the way).

It may not be another trader losing $50: it might be 5 traders losers $10 each.

Or your $50 may be a tenth of what's won from a trader losing $500, divided between a group of people.

Theoretical, abstract examples, of course, but you take the point, doubtless?

That's for futures, anyway.

For spot forex, it's different again, because what most retail traders think of as "brokers" of spot forex are usually actually countyparty market-makers, and they hold the other side of your trade themselves, winning when you lose and vice-versa, so unless you count them as a "trader" (arguably they are), there isn't another trader involved at all.

But in theory, yes, it's all a zero sum game, after the deduction of commissions/spreads.

 

[wintergasp]

I read that both in forex/futures when you enter an order, if you are in the trade winning 50$, another trader is losing 50$. Is there always this pairing of your orders being done?

Also if for example you buy corn futures 1 contract, and you are paired up with another trader who is selling, and you start winning, and the other trader just closes his position but you stay in the trade, potentially winning even more, then whose loss is my gain?

Please tell us. If you make 10,000$, where did you think it would come from ?

 

[Pluralsight]

That was my question, wintergrasp. But based on Xela's answer, I think I understood. If I made 10k, it would be from 1 or more traders that went in the opposite direction.

 

[lawrence-lugar]

That was my question, wintergrasp. But based on Xela's answer, I think I understood.

If I made 10k, it would be from 1 or more traders that went in the opposite direction.

Who cares where your wins comes from...you're getting too technical, if you care. -- Just think of your bet...as being against the whole, collective market

Are you dabbling in an illiquid thing...that's why you are kind of concerned...?
If so, stop trading that illiquid thing.

 

[Overnight]

I read that both in forex/futures when you enter an order, if you are in the trade winning 50$, another trader is losing 50$. Is there always this pairing of your orders being done?

Also if for example you buy corn futures 1 contract, and you are paired up with another trader who is selling, and you start winning, and the other trader just closes his position but you stay in the trade, potentially winning even more, then whose loss is my gain?

It is like LL responded...Don't worry about where your losses go and to whom you may have given, or from whom you have taken when in profit.

If it makes you feel better, look at it this way.

If you are long one XC, and you sell at $50 profit, you may be selling to a new entrant into the market who is short. So you gained and he has lost nothing. Then he buys to cover at a $50 profit from a buyer at another date, which could be you, and you are long again. So you then sell for another $50, to another buyer who happened to short $200 above your first long entry.

Do you see how unwieldy this can get by worrying about the infinite dynamics of futures trading? Do not forget that many of those contracts are going to be held by producers and consumers in the industry. They will actually take deliveries. So you the "specerlator" win, and the producer/consumer also wins. It does NOT have to be considered a lose-lose for anyone. Just trade, man. Don't worry about the "other side".

 

[Pippi436]

Futures are derivatives and as such a zero-sum game, for each contract there are 2 counterparties, one of which will lose and the other will win on each contract traded. Spot trading like FX, equities or everything else like i.e. cars is not zero-sum. Theoretically everyone could win - OTOH maybe you cant even tell if your asset has gained in worth or your currency lost in value..

 

[hoffmanw]

I read that both in forex/futures when you enter an order, if you are in the trade winning 50$, another trader is losing 50$. Is there always this pairing of your orders being done?....
?

As with all trading, you trade against other traders. One wins. The other has to lose.

In the spot Forex, retail traders are often trading again the brokers who often are the market makers. Unless you trade huge volumes like couple million dollars a day, they might take your order directly to their liquid providers such as Goldman Sachs where they match your order with large institutions. These brokers make money from the commission on your trading volume rather than trading against you.

Governments, multinational corps, sovereign funds, mutual funds, investment/insurance firms, wealth individuals and other large institutions often trade against each others through large settlement and clearing banks e.g. Goldman Sachs, UBS, Barclays, Nomura, Societe Generale, Credit Suisse, RBC, Commerzbank, Mizuho Bank. Their trade volume is astronomical. It reaches couple trillion dollars a day. One trade can be large as couple billions of dollars.

They are trading against each others for many purposes. For examples, some Arab oil traders wanted to hedge their currency risk for a month. They placed billions of dollars locked in positions. Some governments wanted to prevent their currency values from increasing. They dumped billions of their dollars buying another currencies.

Warren Buffet is real a bad Forex trader. He lost couple billions trading on spot Forex. He quit spot forex couple years ago. Instead he bought real estate in Israel to hedge currency risk to his oversea investment.

 

[Turveyd]

Don't think single trades, think about this as a pot worth BILLIONS, which we all put money into, we put maybe $2000, Banks put maybe 2Bil on there own.

But we all, draw from the same pot, so in order for you to make $50 others can be many have to lose $50.

The main issue is, pretty much year on year ( the odd exception ) all Banks/trading firms make $$$$'s big massive $$$'s.

If they all make in general, then there profits has to come from well Retail that's us, millions of us losing $100 or $1000 per year.

Not saying there isn't room in the pot for you to make a few Mil there is, but your up against savy smart, well trained Pro's, Retail are giving it away, it's the Pro's your up against.

Your trade, you buy 120 sell 122, the person you bought it from could of bought 110 make +10 and the person that bought off you might sell at 130 maybe next week, or might hold it for 5years to get there.