Zero-Sum Game

This is a false belief again that many markets are zero-sum games, such as Forex, Options, etc. What that statement sais is basically, what you win, somebody else looses.

I myself would have learned about the markets long-long before if I would not have known that the "zero-sum" idea is a false belief. Or at least a half-truth.

Governments print money whenever they need. Or they print 'bonds" which is practically the same as printing money. Where is Forex zero sum?

Options are created similarly. You write one, and you sell it. Both options and futures are not an empty stuff used by speculators to gain some advantage in a global poker game called "futures market" or "options market". These are very important financial tools to hedge against future risk.

When a company writes a future contract. They are hedging against potential loss. Yes, they might "loose on the trade" but actually they did not. They already know months ago their exact profit on the books, because they already had months ago this future contract. There is no loss here, it is just a "locking in of profit". A good business. And on the other side of this trade, a speculator might lost or win some money in exchange for providing the financing for this company on this contract.

Or maybe, there is no speculator on the other side of this contract, just another company wanting to fix down the price today for the future. Nobody loose in this contract. They just agreed on the price between each other and they could not care less after this deal which way the entire market moves.

No comments: