Re: Gen: Is trading gambling?

[Paul Weston <PaulWeston@xxxxxxxxxxxxxx>]

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>
        Maybe i'm missing something on this "zero sum" game we seem to be
accused of playing in...   I understand for every buyer there is a seller,
but
that doesnt necessarily mean a net of zero.  For instance, if I buy a
product
and intend to distribute it , I only buy it with the intention of selling
it
at a higher price then I payed for it.  I didnt lose, nor ,I hope, the
customer I sold it to,  furthermore if this customer was to resell this
same
item to yet another customer at even a higher price yet it cannot be
construed
that someone has lost in this financial undertaking even though there has
been
a buyer and a seller at each junction.
     I see this situation with futures and stocks also.  This might be a
zero
sum game if a price for an equity or commodity was fixed arbitrarily
between
say zero and $1.00, then the commodity or equity would oscillate between
these
two prices indefinitely with buyer and seller each working at each other
trying to outwit each.
        But this is not the case with equities or commodities, there is no
limit on price. 
I mainly trade  S&P's  and when I began trading the trading price of the
contracts was in the low  200 pt range and in a few years , with the 
"split"
making the price equivalent in the 2000 pt range for today.   I could of
bought a contract for example at 
202.10....then sold it and been very happy and a positive gainer at 210.20,
then my buyer of my contract could of sold it at 215.50 and have been a
positive gainer, then he could of sold it at  225.00...with a positive
gain....., then I could of bought it back at 225.00 and resold it at
230.50.....No losers here...No net zero sum..

So the point i'm making....as long as there is no scribed "price" limit,
contracts or equities can be sold at a higher and yet higher price as long
as
there is perceived value.  Not everyone loses on every transaction.  In the
above example...every buyer and seller benefited

Ok, all you whizzes...tell me where my thinking is wrong...

Bob
<


Bob -

Here are a couple of points that I think that you overlooked:

1) futures contracts are not a real asset.  A contract is created any time
a seller sells a contract and a buyer buys it.  There is not limit to the
number of contracts that can exist.  It can go from zero to infinity.

2) All futures contracts expire at a certain time.

Therefore, if we neglect transaction costs, upon expiration, the net sum of
all transactions would be zero.  Each loss would have a corresponding gain.
 Hence, it would be zero sum.

However, because transaction costs exist, the net result is less than zero,
and hence it is a negative sum game.

Hope this helps clear up your question.

Regards,
Paul Weston