Stock market a zero sum game

#1

Is stock market a zero sum game or not

I mean where does the money we loose go or where does the money we gain come from??

#2
#3

I think that stock market is a zerosum game for everyone

If the company grows and due to that the price increases someone who bought the shares earlier sells it now at a profit but on the opposite side someone will also buy that shares

Now think that there is some negative news and market price goes down so the earlier one booked profit and the later one will bear loss due to buying at a higher price …

#4

I think its a little bit more complicated than that. The value of a security depends on the availability of the supply, the more supply in the market the more useless that stock can be. For example the supply of Gold is not easily available, therefore the price of the Gold rarely ever comes down where as the supply of equities is controlled by the mafia that holds the highest number of shares, now he decides what price it should go. If he is unhappy with the stock for some reason he might sell it all and bring down the prices, may be buy it all again when he gets the better price.

#5

It might be a zero sum game, but does not necessarily HAVE to be a zero sum game.
Actually it is very very rarely a zero sum game
Because, I feel you are just considering one scenario here. there are different possibilities that can happen, extending from your example,

Suppose a stock starts out at Rs.10 and someone has bought it at that price and lets assume it has risen to 50 and he sells it to someone else who buys it. Now there are 2 possibilities from here, but you considered just one that the stock will fall.

The stock can rise again too.
If the stock price rises from say 50 to 100 then even the second person makes profit. And again when he sells and if stock rises again the 3rd person makes profit.

So, the only time it is a zero sum game , is when the stock comes back to exactly Rs. 10 (i.e. the price at which it started), then it is a zero sum game because all the profit the stock made is lost.

In all other cases it is either more in profit or more in loss.

Say for example, that stock price drops below 10, then the losses would’ve increased more than profits. Again deviating from the zero sum game concept.

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#6

@prash_u as u said that if i sell the stock at 50 and if the price rises to 100 than again it will be a zero sum gain

As someone bought the stock from me @ 50 rs and stock cmp is 100 so (100-50 =50) rs will be second persons profit and (100-50=50) is my loss than again its a zero sum game

Pls correct me if i m wrong…

#7

I did not wait till 100 so basically 50 is my loss and 50 is his profit

#8

No because there are many people invest money and earn up to 60%

#9

@vaibhavi_Shah

I don’t think you can say that 100-50 would be your loss because you don’t even own the stock now. You are in 50-10=40 Profit and second person is in 100-50=50 in Profit. So, cannot be zero sum.

You are in profit or loss only when you own the stock. It is as good as me saying I am in 100-10=90 Loss because i didn’t own the stock during that period.

It is just that for you to sell a stock some one else should buy it. And for you to buy a stock , someone should sell it.
You could say, It is a zero sum game in that aspect, i.e. we have to play around only with the existing no. of shares.
Which means just because I or you want to buy a few shares a company would not create new shares and give it to you. Someone else who owns it can only sell it to you.

So, in terms of no. of shares, i think it can be said it is a zero sum game as much as I know.
But, it definitely is not a zero sum game in terms of profit/loss aspect.

#10

@prash_u thnx to clear my misconception

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#11

I think this video nails it at the head:

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#12

Though on paper it is a ZERO SUM GAME, it is actually a -ve SUM GAME, as the money is made by the brokerages and the exchange which all come out of the profits and losses made by the traders.

3 Likes
#13

When everyone else is competing for the best explanation to make it a zero sum game, only a few mature thinkers can think like you.

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#14

Derivative or F&O is zerosum game. not the equity cash market

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#15

yours is the only sane answer.

yes, in equity market, the money is put to work in companies, and their employees work for your money. you own the company, employees and its profits (of course a miniscule part of the business based on how many shares you own…). its not a zero sum game.

FnO is zero sum, in fact, operators like NSE, brokers , Govt makes more money than participants.

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#16

It is not a zero sum game . From losses . … If your trading has become zero sum . .it means you are improving at it. Strive for profitibility . .and you will surely succeed.

#17

I dont see that markets are functioning exactly like zero sum game. It is true that in economical sense new value is not produced or added on this market, but eventually this market is so huge that it is not easy to link all connections and make conclusion of who is winning and who is losing

#18

It becomes a zero sum game if investors start booking profits. As long as investors keep holding their shares, the “perceived value” of the stock keeps on increasing (as investors BUY and never SELL, the BUY side quantity is more than the SELL side).

#19

No, the stock market and investing in general is not a zero sum game. Some types of trades are zero sum because of the nature of the trade. But someone isn’t necessarily losing when you gain in the sale of a stock or other security. So something like that.