Forex is NOT a zero-sum game

[ttbisco]

I recently read this short article entitled, "Forex is NOT a Zero-sum Game" on this blog called "nobull forex". It said,

Technically Forex is a zero-sum game, so I apologize for the misleading title, but hear me out. Forex is a zero-sum game, but that means nothing for us retail traders trying to make a profit. You see the biggest players on the Forex market, such as corporations, are making ridiculously large transactions all the time. The thing is, these transactions are generally NOT for profit, but rather just necessary currency exchanges required for regular international business dealings. What this means is, these large corporations knowingly take a loss in the Forex market in exchange for a larger gain in other markets. As a result of these massive transactions and massive losses, there is plenty of room for every single retail trader to profit. So the next time you hear someone say, "Forex is a zero-sum game", just say, "Yes, but remember, not everyone is playing for profit".

Is this true? This seem to make good sense to me, but I would like the opinions of some more experienced traders.

[o990l6mh]

Originally Posted by ttbisco

I recently read this short article entitled, "Forex is NOT a Zero-sum Game" on this blog called "nobull forex". It said,



Is this true? This seem to make good sense to me, but I would like the opinions of some more experienced traders.

Technically Forex isn't even a zero-sum game, it's actually a negative-sum game due to the cost of trading, aka spread, commissions.

The statement in the quote seems correct to me - most forex transactions are not made for speculation. Just remember that you'll be fighting the institutional traders for that slice of profit.

Most retail traders will always be losers anyway, so the whole thing is a bit theoretical.

[hess]

this may offer a more comprehensive and better explanation


http://www.theessentialsoftrading.co...zero-sum-game/

[rhodytrader]

It doesn't matter what the profit motivation is for any participant. A market will be zero sum (negative sum with transaction costs, etc.) if there are matching longs and shorts. To that end, spot forex trading is zero sum.

That said, however, forex overall is not zero sum because there are also just straight exchanges. For example, if I were to travel to London I'd swap dollars for pounds. I'm not taking a short position in dollars doing so. I'm just "buying" pounds so I can spend them.

[xtraction]

Originally Posted by rhodytrader

It doesn't matter what the profit motivation is for any participant. A market will be zero sum (negative sum with transaction costs, etc.) if there are matching longs and shorts. To that end, spot forex trading is zero sum.

That said, however, forex overall is not zero sum because there are also just straight exchanges. For example, if I were to travel to London I'd swap dollars for pounds. I'm not taking a short position in dollars doing so. I'm just "buying" pounds so I can spend them.

And when you leave you would swap pounds for dollars. The exchange rate would most likely be different and you would either make or lose money on the exchange.

[rhodytrader]

Originally Posted by xtraction

And when you leave you would swap pounds for dollars. The exchange rate would most likely be different and you would either make or lose money on the exchange.

I was wondering whether someone was going to make that argument.

I will grant that you are in a long/short position with whatever money you converted but didn't spend. It doesn't really factor into the zero sum equation, though, because the fact that you're holding pound notes doesn't mean someone else is short them.

I suppose you could try to say that by holding one currency you are automatically short all the rest, but that gets absurd.

[xtraction]

Please don't get me wrong, I am not trying to argue with you. My point was that you exchange one currency for another, time passes, and you then exchange back. In most cases, the rate of exchange has changed and you will either make or lose money when you exchange. When you bought the pounds with your dollars, the seller is now holding dollars. Is the seller "short" pounds? The seller stands to gain when you lose, and lose when you gain assuming you are the only 2 traders in this transaction. Of course, the seller could have exchanged your dollars for someone else's pounds.

[ThePhoenix]

Originally Posted by ttbisco

I recently read this short article entitled, "Forex is NOT a Zero-sum Game" on this blog called "nobull forex". It said,



Is this true? This seem to make good sense to me, but I would like the opinions of some more experienced traders.

I think most people when they repeat the, "forex is a zero sum game," don't understand that, that is meant overall. Since when someone wins someone is on the other side losing. The market it'self is, "zero sum."

It doesn't mean traders can't make money because forex is so hard or something or that the market will eventually take it all back if you keep trading. Their are traders that consistently make money and keep it.

But, thats why people usually repeat over used phrases like that out of context, because they just got their ass handed to them in a trade and need an excuse to as to why they lost.

[Valkryder]

Originally Posted by o990l6mh

Technically Forex isn't even a zero-sum game, it's actually a negative-sum game due to the cost of trading, aka spread, commissions.

The statement in the quote seems correct to me - most forex transactions are not made for speculation. Just remember that you'll be fighting the institutional traders for that slice of profit.

Most retail traders will always be losers anyway, so the whole thing is a bit theoretical.

I agree with your last statement. I think if you have to worry about whether or not FOREX is a zero or negative sum game, it misses the point entirely. There is oodles of money to be made by anyone with the right skill set. There is more than enough to go around for everyone who can cut it.

V

[xtraction]

Originally Posted by Valkryder

I agree with your last statement. I think if you have to worry about whether or not FOREX is a zero or negative sum game, it misses the point entirely. There is oodles of money to be made by anyone with the right skill set. There is more than enough to go around for everyone who can cut it.

V

Traders pay too much attention to things other than price.