I don't have much financial knowledge.
I was told that the financial market is the biggest casino in the world. Every dollar I earn is coming from someone else in the market. Is it really the case? If so, what's the point of doing investment?
Original Posted by - b'Jeremy': It depends on what you trade.If it is derivatives, the answer is yes.
Sorry I still can't understand. Can you elaborate more?
Original Posted by - b'Darius': Sorry I still can't understand. Can you elaborate more?
A zero-sum game, usually cited in game theory, refers to a situation where one person’s gain is equivalent to another’s loss, so the net change in wealth is zero. A zero-sum game can involve as few as two players or as many as hundreds of participants.
In financial market, options and futures are examples of zero-sum games. As seen from the payoff chart, excluding transaction costs, the amount gains from a contract is exactly the same amount the counter-party loses.
It doesn't apply to stocks, neither short-term or long-term trading.
Let's say you are a mobile manufacturer (eg. Apple, Samsung, etc). You buy or manufacture components and you assemble the parts into a smart phone. Later you set a sale price that can cover the input costs (eg. component and labor) with a profit margin. The profit is thus the added value. The added value is reflected in dividends, capital appreciation of the share price, or a mix of both.
For example, Samsung doesn't pay a dividend but the retained earnings are reinvested into the business. The shareholders can just sell the shares if they need "income".
That's why we can see from the stock history (eg. SP500), it has a upward trend in long term. If you sell shares and realize a profit, it is not someone else's loss. The productivity gains make us increase output and living standards. If someone had to have a loss for someone else's gain, the stock market would not be able to rise over time.
Original Posted by - b'Henry Tsai': For stock market, I dont think it is the case.
Another argument that financial market is not a zero-sum game: Money Market
All central banks in the world (eg. the Fed) have their own decision on controling the money supply of its domestic currency. When you purchase a US treasury bond, you will receive regular coupons in US dollar. However, the seller or issuer (i.e. the Fed), they can just print the dollar to pay you. If the central bank choose to do so, they have almost nothing to "loss", except for some labor and printing cost.
