Q. Isn’t trading a zero-sum game?
A: A positive sum game implies a net increase in wealth across all participants. With spread betting as in other forms of short-term trading there is no net wealth increase. Arguably the same is true of trading. However, investing is often regarded as positive sum as company assets tend to increase in the long run.
This implies that both spread betting and trading in general are zero-sum games – actually they are negative sum as the trader faces broker commissions and usually you have to pay an interest financing fee.
Traders are also prone to losing quite a bit of money during their learning curve -:
– signal/advice sellers who usually sell books, charge subscriptions, sell black box systems, have seminars or other ways to make money from traders.
– data providers who charge some form of recurring fee.
– from market makers and exchanges – with fees and slippage.
– federal/state governments, who charge taxes on income and capital gains.
– trader mistakes in judgment, execution or money management.
In the stock market, you get skimmed in subtle ways. Sub-penny pricing (in the USA market at least) allows broker-dealers to front run your orders. The market makers, brokers (retail and otherwise), companies, and exchanges all do things that put the retail investor at a disadvantage.
This is the reason you need to work to have a trading edge and proper money management and discipline go a long way towards achieving this (although you also need a winning system). Otherwise you are only in it for the thrill of it.
Unfortunately most retail punters do not realise that on some spread betting instruments the leverage is around 1:85, compounded by lack of basic position sizing and risk management. With the extreme leverage offered [which increases their interest income] it is easy for traders to become overleveraged and end getting wiped out, usually blaming stop hunting or the provider for some reason.
Few people make money trading and those that do often make small amounts. Generally trading is not a positive endeavour and often a very humbling one – some people have been around for very many years and you will still see them posting on forums that they’re struggling. You will find it difficult to locate many journals at all that have anything like decent compounded returns (a phrase you will read a lot of in books and posts about retail trading) anywhere on the internet. However, the lure of big money and a better life does not stop people trying.
