To those that say trading is a 0 sum game...
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Let's say GDP is growing 3% forever and PE are always centered around 20. Then anything you make above 3% is coming out from someone else's pocket. If you are making 50% per year, 47% is coming out from someone else.
In linkedin's case, if a 4 billion company is created today, then the stock market will lose close to 4 billion market cap somewhere else to keep the GDP grow rate at around 3%.
It is zero sum if you look at it that way.
In linkedin's case, if a 4 billion company is created today, then the stock market will lose close to 4 billion market cap somewhere else to keep the GDP grow rate at around 3%.
It is zero sum if you look at it that way.
Trading is zero sum at the point of transaction. The sum nets to zero because shares are always transacted for cash. Buyers in the IPO sold their stakes at 85 and realized a profit. This profit was financed by the party that bought from them. That party now has an unrealized profit of $15 per share, but a realized cash position that is $85 per share smaller. The realized sum nets to zero. Only the unrealized sum can be net positive (excluding oppurtunity cost)
Is trading a zero sum game? Of course it is. This is a naive question. All types of trading of all instruments is zero-sum because the winnings must come from somewhere, some bank account and whoever wins money must take it from someone else, including the government. Money is not magically created ex nihilo through trading. Trading is a mechanism of wealth-reallocation, from prudent speculators and hedgers to uninformed speculators and gamblers.
I wonder why some people have such serious problem understanding such a trivial concept.
Gee...
I wonder why some people have such serious problem understanding such a trivial concept.
Gee...
equities trading is different from derivatives or other types. It is not 0 sum trading. Someone already pointed earlier, equities can be created and destroyed. Example - new equities offerings, etc.
Simple example:
(A) buys stock and (B) sells stock. Stock price goes up. (B) doesn't take loses because he/she sold. There is "loses" in potential profits, but not real lose.
If (B) is short, then the short position becomes an obligation - similar to someone who trades derivatives, which is 0 sum trading.
Simple example:
(A) buys stock and (B) sells stock. Stock price goes up. (B) doesn't take loses because he/she sold. There is "loses" in potential profits, but not real lose.
If (B) is short, then the short position becomes an obligation - similar to someone who trades derivatives, which is 0 sum trading.
That doesn't satisfy the argument of "equities being zero sum". I say they are, in the long run... though few ETers would understand.
Yes, it will.
Plenty of historical examples.
rmorse
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For those that feel that way, please give me a simple example. If you always going to assume lost opportunity, that unreasonable.
I believe you need a closed system, with no other opportunity to consider it a zero sum game, like my example of the poker game. $1000 in the room. For every winner, there is a loser. But, financial markets are not a closed system. I can sell a call, have it go up , and still make money on another call, or the stock, or another asset I paired with it.
Please show me your simple example.
I believe you need a closed system, with no other opportunity to consider it a zero sum game, like my example of the poker game. $1000 in the room. For every winner, there is a loser. But, financial markets are not a closed system. I can sell a call, have it go up , and still make money on another call, or the stock, or another asset I paired with it.
Please show me your simple example.