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>> This thread is dancing around something I've wondered about for
>> years. In the derivitives market, I fully understand where the
>> money comes and goes from. If I buy a futures contract or option
>> at 50 and it goes 100 and I sell it, my account is credited with
>> 50 and one or more other traders accounts are debited 50. At the
>> end of the day the books balance. However, If I buy IBM stock at
>> 50 and it goes to 100 and I sell it, where does that money come
>> from? Is it offest from someone else's account or is this new
>> "wealth". Do the books balance or did the pie get bigger.
>> Conversely if I buy IBM stock at 100 and it goes to 50 and I sell
>> it, where did that money go. Did it get credited into someone
>> else's account or did it return to the place it originally came
>> from. Was "wealth" lost and did the pie shrink?
what's interesting about this thread is that it is, in some ways, a
discussion on whether the "market" is a zero-sum game. i remember
being in an involved (& somewhat heated) discussion on this topic some
time back, to no real conclusion.
what i came away from that discussion was the realization that it's
difficult to define just what the "system" is, that is, the arena of
the game. if one defines the arena or system as the loci of
transactions (i.e., the pits, the specialist desk @ the nyse) then the
answer is fairly simple -- it's a negative sum game for the "players"
(excluding the brokers, specialists, etc). that's obvious, because
the arena is quite limited in scope.
there's also the temporal dimension of defining when the "game" ends.
if i buy an option, someone sells it to me, & someone (or both) pays
the commission(s). one person will "win" and one will "lose" come
expiry (assuming that both hold to expiry, of course). the main point
here is that the options & futures "game" has a TERMINATING DATE at
which point one can determine who "won" & who "lost".
with stocks & real estate, there's no terminating date of the "game".
this makes discussing whether the equities or real estate market is a
zero-sum game difficult. also, as the definition (implicit or
explicit) of the arena of the game widens in scope, things get messy.
i add these comments only because it seems this thread is dancing
around the issue of "zero-sum game". it's a topic which is more
difficult than both my brain cells can handle.
if there are game-theorists/mathematicians etc who would like to
comment, it might straighten (or perhaps further confuse!) the issue.
in any case, this is fascinating, though in all honesty i think i can
trade reasonably well without knowing whether i'm participating in a
zero-, negative- or a positive-sum game...
- *lk
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