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

This is a newbie question but I have to ask.

I read everywhere that for every future contract I buy, someone has to take the opposite side.

In today's fast and fully electronic market, who is that 'someone'?

When I click a button on my PC to buy a contract, who goes out and finds someone to go short?

Whose responsibility is it to find this 'someone'?

Is it my broker? Is it the market-maker (is there such a thing called a market-maker in futures?)?

Futures contracts can be created out of thin air. What happens if nobody wants to go short? How do I get notified if there is no seller?

Has anyone ever experienced this?
 
Quote from Gamer:

This is a newbie question but I have to ask.

I read everywhere that for every future contract I buy, someone has to take the opposite side.

In today's fast and fully electronic market, who is that 'someone'?

When I click a button on my PC to buy a contract, who goes out and finds someone to go short?

Whose responsibility is it to find this 'someone'?

Is it my broker? Is it the market-maker (is there such a thing called a market-maker in futures?)?

Futures contracts can be created out of thin air. What happens if nobody wants to go short? How do I get notified if there is no seller?

Has anyone ever experienced this?
More...

Noone needs to go out and find someone to sell to you. At any given time there are many buyers and sellers in the market. When you send a market order to buy you lift the offers in the limit order book, which shows open buy and sell orders at specified prices.

There's always someone willing to buy/sell.
 
Quote from Gamer:

This is a newbie question but I have to ask.

I read everywhere that for every future contract I buy, someone has to take the opposite side.

In today's fast and fully electronic market, who is that 'someone'?

When I click a button on my PC to buy a contract, who goes out and finds someone to go short?

Whose responsibility is it to find this 'someone'?

Is it my broker? Is it the market-maker (is there such a thing called a market-maker in futures?)?

Futures contracts can be created out of thin air. What happens if nobody wants to go short? How do I get notified if there is no seller?

Has anyone ever experienced this?
More...

if as in october 1987 the limit book gets clogged by craploads of sell orders then you may have to wait hours to get your order processed. THis is an extreme example,99.999999% of the time there is sufficient liquidity for your small order to get filled instantly

Apart from your commissions the market is a complete perfect zero sum game. Bid ask spread goes out of your pocket to market makers for providing liquidity. Gains come from participants on the other side of your contract and losses go to those participants from you
 
exactly

look, EVERY dollar that is marked to market in your futures account, came from some other position's loss

a lot of traders find this concept hard to understand

for every person LONG MSFT, there is not a corresponding short position

but for every LONG CONTRACT of YM at whatever price, there is a corresponding short contract.

that's because contracts are thin air- they are AGREEMENTS

stock is ownership

a futures contract is an agreement. and there HAS to be an "other side" to that agreement

open interest can vary

but there can never be an imbalance in the "sides"

there CAN be an imbalance in ORDERS, but not positions
 
Buying a share is the same as buying an asset: you've paid full value for it.

Buying or selling a derivative is a contract whereby you are agreeing to pay the person on the otherside of the trade if you are wrong or vice versa.

For derivatives you only pay a margin, or fraction of the actual cost of the asset, like a deposit for a house.

If the derivative is of the same asset, then there is no difference in the value of either which is where everyone is getting confused.

The only difference is the cashflows. When you buy your share, you've paid in full but with a derivative you've paid on deposit and have to pay mark to market on a daily basis.

They are both zero sum games because their cashflows in equals their cashflows out. This is where it is zero sum.

If you imagine you buy a share for 100 bucks, someone will receive 100 bucks and you will get your share, but you are now out of pocket by 100 bucks. If you can not sell your share for more then you will lose money. For example lets say you have to sell for 90. You will get 90 bucks and someone will get your share, but they will be out of pocket by 90 bucks.

You may have lost money, but this money didn't disappear into a blackhole, it is just in someone else's pocket and more than likely it will be the person who sold the share to you for 100 bucks.
 
Quote from reactor:


They are both zero sum games because their cashflows in equals their cashflows out. This is where it is zero sum.
More...

You are wrong. Options & futures are zero-sum. Stocks are NOT! Get your act together...
 
just to clarify...

the stock market is NOT zero sum

futures, options (and forex apparently) ARE

the stock market, as a system can build wealth. in the same way a company can. tomorrow, if company ABCD develops a cure for cancer, its stock goes up 1000%

any new buyers are now willing to pay 10 X as much as they were yesterday. value was created. WEALTH was created.

the same is NOT true in the futures market. the people who were short a futures contract will lose (per share) as much as a person who is long gains when the price goes up. and vice versa.

the critical difference is that in the stock market, you rarely (if ever) have the exact same amount of short positions vs. longs

that is a practical impossibility.

in the futures market, you do

one IS zero sum. the other is not

as a matter of "effect", on a daytrader basis, the stock market can essentially SEEM zero sum assuming a group of traders who go flat at the end of the day and are basically trying ot outgame each other for the best share price to sell and buy.

but, in reality, it is not.

the futures market has to be. period

the futures markets also have a (somewhat ) different purpose for many players, especially in commodities, etc. there are hedgeers, for example, who are not looking to make money in their trade, but merely to protect what they are ALREADY long in (for example 100,000 bushels of corn.). this person may go short an equivalent # of corn contracts to lock in the current corn price. so, if the price goes down, their short futures contracts will gain to offset their loss in value of corn that they will now sell at a lower price, etc.

again, these futures contracts are not ownership of a THING, they are an agreement.

based on some of the nimrods who posted earlier in this post, that is a very difficult concept for some people to understand

for PRACTICAL purposes as a scalper, it doesn't really matter. but it is reality whether or not it matters to you.
 
LOL if I buy a share for 100 bucks, someone gets my 100 bucks and I get a share.

If the share goes up to 200 bucks and I sell it at that price, I get 200 bucks and someone is now out of pocket for 200 bucks.

That extra 100 bucks profit has come from outside into the market, but that money has come from somewhere and this is the whole point of a zero sum game. If the 100 bucks came out of nowhere, it wouldn't be zero sum.

If the markets are a positive sum game, you will always get back more than you put in, because money would be appearing from nowhere, which everyone knows is not true as the money is coming from someone else.

If the markets are a negative sum game, you will always get back less than what you put in, because the money would be disappearing into nowhere, which again everyone knows is not true, as the money is going to someone else.

Zero sum is like accounting; for every debit, there is a credit and vice versa.

Just because it is a zero sum game does not mean you can't make money. It just means you need to be skillful at extracting it from others.
 
NOT a zero sum game when you count the number of players and the distribution of gains or losses.

One trader/investor buys sells 10k shares/contracts. Twenty others do 500 apiece.

Time is opportunity cost and opportunity lost. The classic example is when a so called trade is indeed a losing trade and the trade turns into an investment. (SIC)

The time spent in the losing trade is money tied up doing ZILCH, to make matters worse the dead money might have been of great value in another instrument.

ZERO sum game...........NO WAY , no way in hell.

How can anyone call a game where the VAST majority lose be called as ZERO SUM GAME?........... :p :confused:

World Series, St Louis WON, Tigers lost their stripes...........games are about winning and losing, not the sum of money etc. Playing the game of trading also involves some opportunity costs in time. Many traders wasting time looking for the Holy grail would be wiser to spend their time at a regular job. TIME HAS VALUE, use it well or end up being a greeter at a wally store.
 
whistler.............paper money is not wealth creation.

More paper is just needed to buy same amount of goods as the prior paper loses value. (ppp of a currency)

Example: In 1965 a fully loaded Chevy convertible was priced in round numbers $35 hundred dollars, today an approximate grocery getter will cost $35 thousand.

Wealth creation, REALLY ? Where?
 
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