Who wins the zero-sum disasters?

I always here about the zero-sum game of financial markets. I play a lot of poker and it's easy to see who loses and how the minority wins after the rake (or trading commissions).

The losers and winners are less obvious in the financial markets.

During these and other financial disasters over the last 5 years or so, namely:

The dot.com bubble bursting
Barings Bank
Enron/Worldcom
9/11
BCCI
LTCM implosion

Who won?

I've heard all the stories of people (myself included) who lost money. Since I always hear about zero-sum there must have been just as many winners. For every $ lost during theses events, there must have been a $ won (less trading expenses...).

These events wiped $billions from the value of companies, so where or to whom did those $billions go?

Maybe the answer is blindingly obvious

The dot.com bubble bursting:
Those who owned shares in and started companies before the crash who sold to suckers at hugely inflated prices before the crash. Also those who bought cheap shares after the crash in companies that had a sound business model and went on to become a commercial success.

Barings Bank:
The Singaporean traders made lots of the money off Nick Leeson's mistakes.

Enron/Worldcom: The money "wasted" went into employee salaries and probably some corruption as well.


9/11: Those who went long after the big drop - me!
Also probably Osama made some if he had established some shorts before the attack.

BCCI:
Same as Enron I expect.

LTCM implosion:
Don't know them.

Over 95% of options traders beleive options are ZERO SUM GAME! including Mr PROFITAKER AND Mr PITSCUM!! I'm in the small minority who beleive they are NON ZERO SUM GAME



O69

Positive or Negative, Bull, do tell us then.

peto said:

Positive or Negative, Bull, do tell us then.

Click to expand...

Do you know what is meant by NON ZERO SUM GAME?

Options are NON ZERO SUM GAME. Which means for every winner there does NOT have to be a loser! You can have over FIVE winners and NOT a single loser!

Most guys here a believe its ZERO SUM GAME! meaning for every WINNER there has to be a LOSER.

Forget about dealing charges /commissions etc, these charges have to be paid win or lose!

I know what bait to use to catch a mackerel like you! I Just hooked you up unto this thread!

O69

hellokimchi said:

I always here about the zero-sum game of financial markets. I play a lot of poker and it's easy to see who loses and how the minority wins after the rake (or trading commissions).

The losers and winners are less obvious in the financial markets.

During these and other financial disasters over the last 5 years or so, namely:

The dot.com bubble bursting
Barings Bank
Enron/Worldcom
9/11
BCCI
LTCM implosion

Who won?

I've heard all the stories of people (myself included) who lost money. Since I always hear about zero-sum there must have been just as many winners. For every $ lost during theses events, there must have been a $ won (less trading expenses...).

These events wiped $billions from the value of companies, so where or to whom did those $billions go?

Maybe the answer is blindingly obvious

Click to expand...

Hi,

Poker tournaments and trading are quite similar.

In the average poker tournament, you might start with 100 players who have a 1000 chips each. Everyone repeatedly places bets or folds using judgement based on the quality of the hand they are dealt. The winners take money from the losers throughout the game and gradually people drop out of the game. In a typical tournament like this, the top ten players usually get paid, and it's the money from the other 90 players who fund the prize money that pays the top 10 players.

Trading works in a similar way - the 90% of people who lose in the markets pay the 10% of traders who make money.


Thanks

Damian

orion69 said:

Do you know what is meant by NON ZERO SUM GAME?

Options are NON ZERO SUM GAME. Which means for every winner there doess NOT have to be a loser! You can have over FIVE winners and NOT a single loser!

Most guys here a beleive its ZERO SUM GAME! meaning for every WINNER there has to be a LOSER.

Forget about dealing charges /commisions etc, these charges have to be paid win or lose!

I know what bait to use to catch a mackarel like you! I Just hooked you up unto this thread!

O69

Click to expand...

It is a lovely world you inhabit Bull, where no-one loses and everyone wins. Money just appears from the sky and falls into traders' accounts magically.

damianoakley said:

Hi,

Poker tournaments and trading are quite similar.

In the average poker tournament, you might start with 100 players who have a 1000 chips each. Everyone repeatedly places bets or folds using judgement based on the quality of the hand they are dealt. The winners take money from the losers throughout the game and gradually people drop out of the game. In a typical tournament like this, the top ten players usually get paid, and it's the money from the other 90 players who fund the prize money that pays the top 10 players.

Trading works in a similar way - the 90% of people who lose in the markets pay the 10% of traders who make money.


Thanks

Damian

Click to expand...

If i buy a house or STOCK and sell it at a profit and the buyer also sells at a profit and this continues 100 times over a long period of time. How many losers do you have?

A tennis or FA cup tournament starts with 100 clubs or 100 tennis players. For each team that wins ONE has to lose! Likewise with tennins players. Until you are left with just TWO players. Both stes of teams cannot win the CUPfinal! ONE must lose for the other to win! = ZERO SUM GAME

O69

peto said:

It is a lovely world you inhabit Bull, where no-one loses and everyone wins. Money just appears from the sky and falls into traders' accounts magically.

Click to expand...

Its a mystery that ONLY the "ELITE" can grasp! [very small minority]

O69

Hi Orion,

That's true - and i've used exactly the same example for people in the past - but not everyone employs a long-term buy-and-hold strategy in this way, and for those that do, few traders can select a stock that is guaranteed to just keep going up and up year after year.

I think that's what makes the zero-sum thing difficult to calculate in trading - shares are bought and sold between many different traders, all of whom are employing many different strategies.


Thanks

Damian

Peto my good friend and IB employee.

Would you like to answer my POST NUMBER 8 please?

Cause i have a new question waiting for you! :idea: Or are you going to dissapear in thin air?

O69

orion69 said:

If i buy a house or STOCK and sell it at a profit and the buyer also sells at a profit and this continues 100 times over a long period of time. How many losers do you have?

A tennis or FA cup tournament starts with 100 clubs or 100 tennis players. For each team that wins ONE has to lose! Likewise with tennins players. Until you are left with just TWO players. Both stes of teams cannot win the CUPfinal! ONE must lose for the other to win! = ZERO SUM GAME

O69

Click to expand...

I was replying to your post on Options, although my comments would apply equally to any other fixed term derivative.

damianoakley said:

Hi Orion,

That's true - and i've used exactly the same example for people in the past - but not everyone employs a long-term buy-and-hold strategy in this way, and for those that do, few traders can select a stock that is guaranteed to just keep going up and up year after year.

I think that's what makes the zero-sum thing difficult to calculate in trading - shares are bought and sold between many different traders, all of whom are employing many different strategies.


Thanks

Damian

Click to expand...

Damian,

Do you know that a derivative can move faster than a train? Sometimes one position contract can move to 100 different owners within 2 days and each can make a profit and NOT one loser!

O69

Hi Orion,

That's great and very interesting, but I'm not a derivative trader, so I'm not disputing your point ! :cheesy:


Thanks

Damian

peto said:

I was replying to your post on Options, although my comments would apply equally to any other fixed term derivative.

Click to expand...

A March ATM call can keep rising in value for 5 days. This position can be bought and sold at higher price for the duration of 5 days and every buyer sold on for a gain. Do you disagree with this example?

If you disagree with this example than i chalenge you to find me a loser for every winner.

orion69 said:

A March ATM call can keep rising in value for 5 days. This position can be bought and sold at higher price for the duration of 5 days and every buyer sold on for a gain. Do you disagree with this example?

Click to expand...

No, that sounds good to me Bull, with the proviso you made earlier:

orion69 said:

Forget about dealing charges /commissions etc, these charges have to be paid win or lose!

Click to expand...

peto said:

No, that sounds good to me Bull, with the proviso you made earlier:

Click to expand...

No doubt when you return after supper you will astonish us with your explanation of how their gains are not offset by the seller's loss...resulting in ....a zero-sum game?

peto said:

No doubt when you return after supper you will astonish us with your explanation of how their gains are not offset by the seller's loss...resulting in ....a zero-sum game?

Click to expand...

Miss Peto.

I have just returned from my dinner. sorry i took so long keeping you waiting.

Over 90% of options traders say Options are ZERO SUM Game [for every ONE winner you must have ONE loser] And the small minority [under 10% say its NON ZERO SUM.]

You obviously stand with the majority for not agreeing with me. Now tell us where are the losers in this scenario:~

ONE CALL CONTRACT PER PERSON

Day one 50 persons buy a FTSE March ATM CALLS at 60 pts [£10 per point] from the MMkrs at his bid price.

Day 2 all 50 persons sell those Calls at 70pts to 50 other buyers. [gain of 10pts = £100 profit each]

Day 3 all 50 owners sell those CALLS at 90pts to 50 other buyers. [gain of 20pts= £200 profit each]

Day 4 all 50 owners sell those CALLS at 110 pts to 50 other buyers. [gain of 20 pts= £200 profit each]

Day 5 all 50 owners sell those CALLS at 150 pts to THREE buyers [at a gain of 40pts = £400 profit each.

Now you have just THREE persons holding all those 50 CALLS contracts from the 50 sellers. HOW MANY WINNERS IS THERE AND HOW MANY LOSERS CAN YOU SEE?

THE THREE HOLDERS ON THOSE 50 CONTRACTS SELL TO ME IN FEBRUARY AT 170. THEY MAKE A GAIN OF 20PTS = £200 PROFIT PER CONTRACT BETWEEN THREE PLAYERS.

I'M NOW THE HOLDER OF ALL THOSE 50 CONTRACTS AND STILL HAVE 20DAYS TILL EXPIRY AND THEY ARE SHOWING 200PTS VALUE = £2000 X 50 CONTRACTS. I'M STILL HOLDING CONTRACTS FOR MORE PROFITS.

WHERE ARE THE LOSERS TO MAKE SCENARIO ZERO SUM GAME?

To be ZERO SUM GAME you need to show ONE loser for every ONE winner!

I have plenty of time, i can wait until you go back to your boss at IB for help!

http://www.gametheory.net/Dictionary/ZeroSum.html

O69

For the longer term ongoing profit of continually buying and selling at a higher price it would ultimately need an ever increasing population. Otherwise at some point someone will have bought at the top and have no-one to sell to at a profit. If the population declines then there will be more sellers at the top trying to sell to a lower number of buyers which will also cause prices to decline. Of course this is all very simplistic and only my view.


Paul

Trader333 said:

For the longer term ongoing profit of continually buying and selling at a higher price it would ultimately need an ever increasing population. Otherwise at some point someone will have bought at the top and have no-one to sell to at a profit. If the population declines then there will be more sellers at the top trying to sell to a lower number of buyers which will also cause prices to decline. Of course this is all very simplistic and only my view.


Paul

Click to expand...

Paul,

This is a situation on FTSE index Eu Style that has accured when Footsie was below 5600 and kept rising till this present day! Now Footsie is above 6100. The footsie can move for longer periods than just 2-3 months in a BULL mrkt. And an ATM call goes ITM and keeps on increasing in value until expiry day! The problem is with the MMkrs! Who fcuk cares about the MMker?

I will put all 50 contracts on MMkr on expiry day and take my profit! Now you have JUST ONE loser and ALL those winners laughing all the way to the bank.

O69