Trading is a zero sum game
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Not necessarily. Options are a zero sum game because there is one contract and one buyer and seller for each contract. Stocks tend to appreciate over time and there should be more winners than losers. Some win bigger than others.
first of all paper money doesn't have value persay,it is only a store of value.its value is derived from the amount of goods or services you can exchange it for.
if a farmer plants a wheat seed and it grows and becomes a wheat crop he has created value.if a miller buys the wheat and creates bread he has created more value.if a consumer agrees to buy that bread for $1 and he makes $10 per hour doing his labor he is agreeing to give up 1/10 of an hours labor for that loaf of bread.therein lies the value of money.
its the same in the stock market in the big picture.a miner mines sand.intel buys the sand and applies heat and makes a computer chip.a consumer is willing to work 50 hours to get a computer.there is the value of the money given to intel.
so to answer your question the value of money comes from people who create things.farmers, miners,laborers, ect.
Mr. Daniel,
First let's start out with an exact definition of "Zero Sum."
A Zero-Sum game is that which everything put into the system is all that can be taken out of the system. The system itself cannot generate more without an external source. Also, in a Zero-Sum game, if you start with X amount (excluding leakage i.e. commissions, etc), and someone takes out .7X, there is only .3X left to be drawn out by others. If two people play this game and both contribute .x and one draws out .x, then there is a loser.
Now, technically speaking, you could really argue that markets are both Zero-Sum and non Zero-Sum. This is because the definition of "winning" is vastly different between the arbiters, speculator and hedger.
If I play a game where people are throwing money into the pot with no intention of wanting to take money out of THAT SAME POT, then there is a net-positive system because other's can take that money.
The future's market, along with other markets, could be considered synergistic in nature when you consider that a speculator can take the money from a hedger without either losing. The speculator is winning because he's fulfilling his specific "win" function by increasing his capital. The hedger, on the other hand, is also winning because he's reducing his risk-profile in other sectors and thereby increasing the value of those other investments.
However, if you take all the little systems and combine them up, you are still left with the total money supply of the national economy. Excluding inflation, if I go to bed with 5 dollars more to my name than I woke up with, someone or a group of people or corporations is missing 5 dollars.
Many people don't view money as just another commodity -- but it is. Money is just convenient because I can walk into 7-11 and buy a slurpee with it because there is an agreed upon value of that currency. I could walk into 7-11 with a gold bar, but then since the gold market isn't as easily understood as the money market, it may be harder to buy things with it.
When you trade, you are merely trading one commodity (money) for another (stock, contracts, options, other commodities). The entire purpose of trading is leaving one risk/reward profile and entering another one with the intention of increasing total net-worth because the other commodity is going to move moreso than the commodity one is trading it for.
U.S. currency is stable and doesn't move much -- it is a low risk/low reward commodity that traders trade every day for other risk/reward profile commodities.
Just add up all the systems involved and you still get the total money supply -- if that money supply increases, then prices will increase because it all goes back to supply and demand (inflation, deflation, etc).
So, technically, everything is zero-sum in that respect. Realistically, since everyone's definition of "win" may be slightly different, synergetic components come into play with markets.
First let's start out with an exact definition of "Zero Sum."
A Zero-Sum game is that which everything put into the system is all that can be taken out of the system. The system itself cannot generate more without an external source. Also, in a Zero-Sum game, if you start with X amount (excluding leakage i.e. commissions, etc), and someone takes out .7X, there is only .3X left to be drawn out by others. If two people play this game and both contribute .x and one draws out .x, then there is a loser.
Now, technically speaking, you could really argue that markets are both Zero-Sum and non Zero-Sum. This is because the definition of "winning" is vastly different between the arbiters, speculator and hedger.
If I play a game where people are throwing money into the pot with no intention of wanting to take money out of THAT SAME POT, then there is a net-positive system because other's can take that money.
The future's market, along with other markets, could be considered synergistic in nature when you consider that a speculator can take the money from a hedger without either losing. The speculator is winning because he's fulfilling his specific "win" function by increasing his capital. The hedger, on the other hand, is also winning because he's reducing his risk-profile in other sectors and thereby increasing the value of those other investments.
However, if you take all the little systems and combine them up, you are still left with the total money supply of the national economy. Excluding inflation, if I go to bed with 5 dollars more to my name than I woke up with, someone or a group of people or corporations is missing 5 dollars.
Many people don't view money as just another commodity -- but it is. Money is just convenient because I can walk into 7-11 and buy a slurpee with it because there is an agreed upon value of that currency. I could walk into 7-11 with a gold bar, but then since the gold market isn't as easily understood as the money market, it may be harder to buy things with it.
When you trade, you are merely trading one commodity (money) for another (stock, contracts, options, other commodities). The entire purpose of trading is leaving one risk/reward profile and entering another one with the intention of increasing total net-worth because the other commodity is going to move moreso than the commodity one is trading it for.
U.S. currency is stable and doesn't move much -- it is a low risk/low reward commodity that traders trade every day for other risk/reward profile commodities.
Just add up all the systems involved and you still get the total money supply -- if that money supply increases, then prices will increase because it all goes back to supply and demand (inflation, deflation, etc).
So, technically, everything is zero-sum in that respect. Realistically, since everyone's definition of "win" may be slightly different, synergetic components come into play with markets.
In futures, there is always an opposing position, so wins by one are offset by losses from another.
Stocks are not zero sum.
1. One can buy a stock at $10, sell at $20. The buyer at $20 can sell it at $30. Both winners, but not necessarily any losers. (Could be viewed as a zero sum transaction of there were short positions on that stock, but not all stock can be shorted + the total of long stock greatly exceeds the total of short stock available.)
2. In an IPO...
a. Say, $20,000 in hard cash is necessary to bring a stock public.
b. The float + insiders = 20 Million shares
b. The underwriters net $20/share on the offerering.
c. The insiders have shares at anywhere from free to $.50 pershare.
d. Out of $20,000 + insider costs, $400 Million in market value is created out of say, $20, 020,000.
Stocks are not zero sum.
1. One can buy a stock at $10, sell at $20. The buyer at $20 can sell it at $30. Both winners, but not necessarily any losers. (Could be viewed as a zero sum transaction of there were short positions on that stock, but not all stock can be shorted + the total of long stock greatly exceeds the total of short stock available.)
2. In an IPO...
a. Say, $20,000 in hard cash is necessary to bring a stock public.
b. The float + insiders = 20 Million shares
b. The underwriters net $20/share on the offerering.
c. The insiders have shares at anywhere from free to $.50 pershare.
d. Out of $20,000 + insider costs, $400 Million in market value is created out of say, $20, 020,000.
Yes, and then someone else can buy it at $40, then $50 -- so everyone keeps making money out of this machine and nobody losses. However, at some point the top is reached and then, when they go to sell the shares they bought at the top, they're going to get less money for it. So, you see there will be losers, although it is harder to see that since there can be a large period of time seperating winners and losers.
Originally posted by gnome
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2. In an IPO...
a. Say, $20,000 in hard cash is necessary to bring a stock public.
b. The float + insiders = 20 Million shares
b. The underwriters net $20/share on the offerering.
c. The insiders have shares at anywhere from free to $.50 pershare.
d. Out of $20,000 + insider costs, $400 Million in market value is created out of say, $20, 020,000.
$400 million just didn't get printed from thin air from a simple IPO. The market value is determined by how much someone is willing to pay for it. If there is $400 million in market value, then on paper money may seem to have been created, but in reality there will eventually be losers. There is no system or scheme that nets all winners -- at least, not if they are all playing to "win" the same way.