scose-no-doubt
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What about rate differentials... is that not a form of yield for FX?
Do you think the participant's point of view comes into this debate at all? Does perception matter?
And do you think that a cash gain from other participants is the only gain available by participating in the futures or forex markets? Is it possible to gain by losing? Are there any participants who are in fact hoping to lose?
From a purely buying and selling perspective and not including dividends then stocks rely on an ever increasing valuation of the stock for it to not be zero sum. So it is possible for generations of people to make a profit by selling them to the next generation. However, at some point the stock will not increase in value and at that point someone will lose money when selling if for no other reason that commission costs.
What about rate differentials... is that not a form of yield for FX?
I agree that there are any number of other gains and losses to be made from trading, and we could easily go round and round on the subject of opportunity cost. From a strict financial perspective, though, it's clear-cut.
So does the fact that gains in one account are matched exactly by losses in another account (making this zero sum, or negative sum when transaction costs are considered) actually matter to a trader?
So does the fact that gains in one account are matched exactly by losses in another account (making this zero sum, or negative sum when transaction costs are considered) actually matter to a trader?
Dunno just throwing it out there. I'm just wondering whether FX can be zero sum if you can three point arb and whether the causes of those inefficiencies, whatever they are, (probably rates related I was thinking) could be used to draw conclusions.
So does the fact that gains in one account are matched exactly by losses in another account (making this zero sum, or negative sum when transaction costs are considered) actually matter to a trader?
not really, because it's not a direct competition. The person "taking the other side of your trade" may just be closing a profitable trade for example.
If you can successfully do a 3 point arb then you're taking money away from someone
I'm talking specifically about retail forex here, where the trading is in liabilities, not inter-bank spot where money actually changes hands. At that level it is more akin to stocks.
You're conflating the party with whom you trade and the party on the other side of your position. For example, if you are long the ES and "sell" that position to me then while you and I are parties to the transaction, the bloke who was short on the other side of your long is now on the other side of my long. He and I are now effectively in direct competition in that one of us is going to take money out of the pocket of the other.
In the futures market (and retail spot forex) it is an absolute zero sum (negative some factoring in spreads and transaction costs). No one can win without there being an equal loser.
This is why I would argue stocks are not zero sum. Because you're exchange an asset (fractional ownership of a company in this case) rather than matching liabilities (as in futures), one can gain without another losing.
The whole system is instantaneously zero-sum. Because of varying holding periods, it doesn't have to be zero sum over a longer horizon. Moreover, it doesn't have to be zero-sum, if you presume that there's someone hedging non-mkt considerations in the market.