"So, only when we trade real things like stocks or houses wealth can be created or lost and we have a non zero sum, but when we trade agreements without the actual transfer of the real thing wealth cannot be created and we have a zero sum? Agreements then have their own price independent of the real thing, so it means that in futures we trade agreements about the underlying issue, not the underlying issue.
So, if I have somebody's agreement, then this somebody does not have this agreement and that makes him short and on the opposite side of my position?"
um... basically yes.
look at the cot reports, for instance.
trading of agreements HAS to be zero sum because you can't have an agreement without two opposite POSITIONS
otoh, you can exchange a good without there being two opposite POSITIONS.
also, there are a finite number of goods (shares) but an INFINITE # of contracts.
if tomorrow, open interest on the dow increases by 10,000 contracts, that means 10,000 additional two sided agreements with a net/gain loss of ZERO.
but tomorrow, the only way there can be more SHARES of GE, is if there is a public offering of shares.
the shares represent an EXACT portion of that thing - GE - the company.
how people value it at any given moment is the democratic two way auction process of price discovery.
if i sell you my house, that i bot for 300k , for 450 k., i am not now short 1 house.
there is still one person long my house.
and i';m out with a profit.
if i buy an option to purchase a house, somebody else holds the paper to the other side of that agreement and they are necessasrily short.
if, tomorrow we discover how to make a perfect clean fuel out of corn, and corn goes from it's current price to $50 a bushel, every person who owns CORN just gained a hyoooge amount of wealth.
but the corn futures market cannot (net) gain a dime. cause for EVERY long positioon there is short positioon in that market (of course many people short corn FUTURES are long the underlying product in order to hedge their price, but WITHIN the futures market it is zero sum. but it is a fact that many use futures and options to hedge an underlying real world position and are not speculating. they are hedging a real product. if corn futures go up, their short goes down in value, but the corn in their silo goes up, so they are net even with where they were - a hedge. if corn prices fall, their short gains value concomitant to their silo'd corn losing value. net even (minus commissions, etc.). many people use futures and options this way. )
look at options. options are also agreements.
if the market could not grow wealth, then the stock market would not be the proxy for the companies it represents.
fortunately it is.
So, if I have somebody's agreement, then this somebody does not have this agreement and that makes him short and on the opposite side of my position?"
um... basically yes.
look at the cot reports, for instance.
trading of agreements HAS to be zero sum because you can't have an agreement without two opposite POSITIONS
otoh, you can exchange a good without there being two opposite POSITIONS.
also, there are a finite number of goods (shares) but an INFINITE # of contracts.
if tomorrow, open interest on the dow increases by 10,000 contracts, that means 10,000 additional two sided agreements with a net/gain loss of ZERO.
but tomorrow, the only way there can be more SHARES of GE, is if there is a public offering of shares.
the shares represent an EXACT portion of that thing - GE - the company.
how people value it at any given moment is the democratic two way auction process of price discovery.
if i sell you my house, that i bot for 300k , for 450 k., i am not now short 1 house.
there is still one person long my house.
and i';m out with a profit.
if i buy an option to purchase a house, somebody else holds the paper to the other side of that agreement and they are necessasrily short.
if, tomorrow we discover how to make a perfect clean fuel out of corn, and corn goes from it's current price to $50 a bushel, every person who owns CORN just gained a hyoooge amount of wealth.
but the corn futures market cannot (net) gain a dime. cause for EVERY long positioon there is short positioon in that market (of course many people short corn FUTURES are long the underlying product in order to hedge their price, but WITHIN the futures market it is zero sum. but it is a fact that many use futures and options to hedge an underlying real world position and are not speculating. they are hedging a real product. if corn futures go up, their short goes down in value, but the corn in their silo goes up, so they are net even with where they were - a hedge. if corn prices fall, their short gains value concomitant to their silo'd corn losing value. net even (minus commissions, etc.). many people use futures and options this way. )
look at options. options are also agreements.
if the market could not grow wealth, then the stock market would not be the proxy for the companies it represents.
fortunately it is.
