Zero-Sum Game
A market situation where one participant's gain equals another's loss, with total gains minus losses equaling zero.
Forex and derivatives are zero-sum before costs: every profit is matched by a counterparty's loss. Add transaction costs and the market is slightly negative-sum.
In a zero-sum game, the total gains of all participants exactly equal the total losses. Forex and derivatives trading are often considered zero-sum: for every profitable trade, there's a losing counterparty. However, transaction costs make it slightly negative-sum.
How It Works
- You profit $100 on EUR/USD long
- Someone else lost $100 on the other side
- Total: +$100 - $100 = $0
- Minus spreads/commissions = negative-sum
Trading Tips
Your profits come from other traders' losses
Brokers/exchanges profit from all trades
Edge and discipline determine long-term success
Zero-Sum Game Example
Say you and one other trader bet opposite sides of EUR/USD with no spread or fees, $100 each. One gains $100, the other loses $100, and the room totals zero. Add a $2 spread each and the room totals minus $4: slightly negative-sum, which is real trading.
How Traders Use Zero-Sum Game
Accept that edge must come from somewhere: information, discipline, or someone mistake. Anyone selling a system where everyone wins is selling the dream, not the math. Your job is being the counterparty who prepared.
Related Terms
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