zero sum game?????????????

QQQShort · Mar 1, 2006

Quote from Don Bright:

Our analysis:

Futures and Forex tend to be zero sum game...every winner has a loser.

The stock market provides an average growth of 8-10%, pays dividends, and companies make money (or go out of business).

Don

Does your conclusion extend to physical delivery?

Also, the qualifier "tend to" leaves open a small crack. Was that intentional?

volente_00 · Mar 2, 2006

This is a zero sum thread. Every post in it has zero value.

PitchBlack · Mar 2, 2006

Quote from volente_00:

This is a zero sum thread. Every post in it has zero value.

1000 · Mar 2, 2006

Quote from DynamicReplic8r:

If you're talking about the bond market, then yes, the bond pricing function exhibits convexity. When yields fall by a given amount, the price will rise by more than it would fall if yields rose by a that same given amount. However, that is completely priced into the market. When rates are expected to be volatile, bonds that exhibit greater convexity will be relatively more expensive. So, if you buy a bond that exhibits high convexity and rates turn out to be less volatile, you will actually do worse than you would have if you had bought a low convexity bond.

If you're talking about options, it's called gamma, and again, completely priced in.

But, I don't see what this has to do with whether any market is defined as zero sum. Please do elaborate.

The date is 31st Dec 2005, the futures trade is ER2 (Russell 2000). For all those who traded this will know that the futures is not zero sum. Ask the Nybot.

The date is 31st Dec 2005, the futures trade is YM (Dow Jones). For all those who traded this will know that the futures in not zero sum.

Unless you placed actual futures trades with a view to arbitrage, you will not know.

Try trading spreads between indexes like the Dow and Ftse.

You may have complete pricing in or gamma, but this only proves non zero sum and that the equation needs constant adjusting with spreads and different trading instruments.

DynamicReplic8r · Mar 2, 2006

Quote from 1000:

The date is 31st Dec 2005, the futures trade is ER2 (Russell 2000). For all those who traded this will know that the futures is not zero sum. Ask the Nybot.

The date is 31st Dec 2005, the futures trade is YM (Dow Jones). For all those who traded this will know that the futures in not zero sum.

Unless you placed actual futures trades with a view to arbitrage, you will not know.

Try trading spreads between indexes like the Dow and Ftse.

You may have complete pricing in or gamma, but this only proves non zero sum and that the equation needs constant adjusting with spreads and different trading instruments.

Nice try. When you trade a spread you make money in one contract. The person/people that are on the other side of that trade lose money. You lose money on the other leg, and the person/people on the other side of that trade make money.

The same goes for arbitrage.

Here is an example of how it could not be zero sum. You own one contract someone else is short that contract. When the price goes up one tick, you make $30 and the other person only loses $25 (on that trade...forget about what other positions they have..it's irrelevant). That's just not the way contracts are designed.

Pekelo · Mar 2, 2006

Quote from volente_00:

Every post in it has zero value.

Not true. Some posts has negative sum value in this thread...

Don Bright · Mar 2, 2006

Quote from QQQShort:

Does your conclusion extend to physical delivery?

Also, the qualifier "tend to" leaves open a small crack. Was that intentional?

I think nutsneal has a good explanation....and the reason for "tend to" is because of non cash expiration (which applies to deliverable commodity futures, referring to your other (good) question).

Don

1000 · Mar 2, 2006

Quote from DynamicReplic8r:

Nice try. When you trade a spread you make money in one contract. The person/people that are on the other side of that trade lose money. You lose money on the other leg, and the person/people on the other side of that trade make money.

The same goes for arbitrage.

Here is an example of how it could not be zero sum. You own one contract someone else is short that contract. When the price goes up one tick, you make $30 and the other person only loses $25 (on that trade...forget about what other positions they have..it's irrelevant). That's just not the way contracts are designed.

Your assuming that an exact equal position is taken at the exact equal time on the exact equal instrument that is being traded.

Where does "auction" come into this. What do you understand by "open outcry." And how is this validated?

whitster · Mar 2, 2006

you still don't get it

it does not matter if it is auction or electronic

these contracts are transferred

all they are is agreements. with a price agreed upon by both sides. there are necessarily two holders of every future contract. one person MUST be short for every person who is long

one side necessarily offsets the other

they have no "thing" attached to them (like a stock does), since they are purely agreements

only MSFT can issue a share of MSFT, since a share of MSFT is literally a percentage of the company - MSFT

otoh, a single stock future in MSFT is merely an agreement. it is a contract setting a price, between a long holder and a short holder of the same contract

there is no net difference between the two, hence it is zero sum

stocks are different. they are not zero sum, since there can be (and obviously is) a net sum, whether or positive or negative

assume there are 10 millions shares of stock in the entire stock market

the value of that market can (to paraphrase JP Morgan) "fluctuate"

assume there are 10 million contracts of MSFT single stock futures outstanding

the value of that market cannopt fluctuate. it is zero. everybody who is long 1 contract has a counterpart who is short one contract

i use SSF's because they are easier examples. this holds true for any futures contract tho.

DynamicReplic8r · Mar 2, 2006

Quote from 1000:

Your assuming that an exact equal position is taken at the exact equal time on the exact equal instrument that is being traded.

Yes, if you're talking about a futures contract, that's what I'm "assuming." When I buy one futures contract, someone else sells one futures contract at the exact time in the exact same instrument. Maybe I bought 10 futures contracts from 10 different sellers. Fine. If the price goes up, I make 10 times what each of them loses, but if you sum the longs and subtract the sum of the shorts the net is zero.

Every wonder why open interest is only one number. Why isn't there an open interest for longs and an open interest for shorts? You know why? Because the numbers are equal!