The Zero Sum and Minus Zero Sum

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 Trading Forex is a Minus Zero-Sum Game.

 


A zero-sum game is a concept in game theory where the total amount of wealth, resources, or value remains constant. In this type of game, any gain by one participant is offset by a loss from another. In trading, particularly in markets like Forex, it is often considered a zero-sum game because for one trader to make a profit, another trader has to incur a loss, keeping the overall value unchanged. The total amount of money being exchanged remains the same; it simply shifts from one participant to another.

However, in minus zero-sum games, the situation is slightly different. Not only must one party lose for another to win, but there are additional costs or factors that create an overall net loss in the system. In trading, this is often the case because brokers or other intermediaries charge fees, commissions, or spreads, which reduce the overall amount of profit in the system. These costs mean that even if you make a profit, you might still be losing relative to the ideal situation where no additional costs are involved.

In essence, trading in financial markets can be seen as a minus zero-sum game because:

  1. For every winner, there’s a loser: In a direct transaction, if one trader proτ€€ts, another must lose the same amount, maintaining the zero-sum dynamic.
  2. The broker always wins: Regardless of who wins or loses in the market, the broker makes money through spreads, commissions, or other fees. These additional costs create a situation where the total money in the system is not just shifting between participants but also diminishing due to these intermediary fees. 

In short, trading is a minus zero-sum game because profits are dependent on the losses of others, and brokers ensure they make money from the transactions, regardless of which side of the trade wins.

Learn more at Forex College - www.forexcollege.co.za


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