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AnkerNews > Blog > Forex Trading > Forex is zero sum game
Forex Trading

Forex is zero sum game

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Last updated: 2023/02/14 at 5:50 AM
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Zero Sum Game is a game theory which explains that the profit earned by one person is the same as the loss experienced by others so that the change in profit is equal to zero.

An example of a zero sum game is gambling. For example, in a poker game, the profits that some people get are a combination of the losses incurred by other players, in sports games such as tennis, badminton, chess and other sports that consist of 2 players also enter the zero sum game because one will definitely be a winner and the other a loser.

In forex trading, options and futures are basically a zero sum game because the profit earned by one party is the result of the loss of the other party, be it from traders who are purely trading for profit or because of speculation and trading for other purposes/purposes. But when viewed as a whole, forex can be a negative sum game or a positive sum game like the stock market when viewed as a whole.

All forex players must have an interest in making profits, whether market participants use good and correct trading methods or just speculate/gambling, it is clear that some are profitable and some are losing, all covering each other in the vast and high-volatility forex market ocean. The difference is that traders who trade with analysis do not include gambling, but there are still very many traders who trade by gambling.

The term of zero sum game is actually used in many fields, especially in the political field, where the term zero sum game is in the end it’s nil aka zero, let’s say there are two people fighting, one wins and one loses, the one who wins will get a value of +1 and the loser will get a value of -1, so in the end it’s still zero too.

in this forex trading business, I personally agree and disagree. because it depends on the broker, if the dealer broker we use, our wins or profits are someone else’s loss. but I’ve read there are also brokers who use the market throwing method. This means that client transactions are carried out in the forex market, and the broker only takes advantage of the spread that has been set.
but in my opinion, as long as the broker pays the profits we get, there is no problem. if you think about it globally, actually everything is a zero sum game. meaning that one with the other is fighting for profit. and dredge up the losses of others. I think this is happening in various fields. especially if in this forex trading business.

Zero Sum Game itself means a condition where the profit of one party is the benefit of the other party, in the world of investing in the stock exchange or forex, the Zero Sum Game cannot be separated, for example in buying and selling shares where the largest profit obtained by investors is in capital gains / changes stock prices are not on dividend income, stock traders who play in the short term are actually involved in the Zero Sum Game, this is different from investors in the long term who benefit from dividends and stock price increases which are supported by the fundamentals of the stock.

As well as in forex trading, actually traders are involved in the zero sum game, so if the trader makes a profit on the other hand there is another party who loses and if the trader loses on the other hand there is another party who gains, this other party can be a broker if the broker is a dealer , or other traders and other parties if the broker used is the ECN type

Zero sum game is a theory which states that if one party wants to, the other party suffers a loss of as much as the other party’s gain. So if the other party’s profit is reduced by the other party’s loss, the result is zero. This is the meaning of the zero sum game. An example of a zero sum game is gambling, where if the player wins, the dealer will suffer a loss.

Then what about forex?

The problem of zero sum games in forex depends on the broker used, whether the dealing desk or ECN. In DD brokers, market liquidity is provided by the broker. For example, if a trader takes a short position on GBPUSD, the broker will take a buy position. Remember the principle of buying and selling, there must be a party who offers goods and another party buys them. If no one sells then there will be no transaction.

Because liquidity is provided by the broker, the profit gained from trading with the DD broker will be detrimental to the broker, while trading losses will be an advantage for the DD broker. This is what is meant by a zero sum game in forex, because there are only 2 parties who transact, namely brokers and traders.

Meanwhile, trading at an ECN broker is not a zero sum game. Because the money is directly thrown into the financial market and is not managed by a broker. The party that provides liquidity is a large number of banks. If this is more similar to buying and selling goods in conventional markets, how do you get a cheap price and then sell it at a high price.

The term zero sum game itself means a situation in game theory in which one person’s gain is equal to another’s loss, so the net change in wealth or benefit is zero. A zero-sum game may have as few as two players, or millions of participants.

Zero-sum is found in game theory, but is much rarer than zero-sum games. Poker and gambling are popular examples of zero-sum games because the amount won by some players equals the combined losses of the others. Games like chess and tennis, where there is one winner and one loser, are also zero-sum games. In financial markets, options and futures are examples of the zero-sum game, excluding transaction fees. For every person who gets a contract, there is an opposing party that loses.

Is forex including zero sum game? there are many traders who make their living trading the forex market, and many companies or funds employ professional traders to help them profit from the forex market.

However this is a very fast market. It is the largest market today, with almost $4 trillion in daily turnover, therefore it is a bit difficult for many to find the right way to profit from this fast paced market.

The best way to do this is to get a great forex trading course, which will teach you how to beat the market and help you find what works for you. The main reason why people fail at forex trading is because they buy very expensive systems that don’t work because they don’t suit them.

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Ankernews December 19, 2022
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