XMTrading: Is FX a zero-sum game a lie? Differences between theory and reality

I think that the term zero-sum game comes up often when collecting information about FX. What does zero-sum game mean? And is FX really designed to be a zero-sum game?

What is a zero-sum game?
Is FX a zero-sum game?
1. equivalent exchange
2. gain and lose
Forex reality
Is FX a negative sum game?
Recommended XM
1. Related

What is a zero-sum game?

The term zero-sum game means that the profit of the winner is equal to the loss of the loser. It is generally said that Forex is a zero-sum game because making a profit in Forex depends on someone making a loss.

There are also synonyms for this. There is a word called a plus-sum game. This means that the sum of the profits and losses of the participants in the game is positive. In other words, it can be said that it is a win-win relationship.

There is also the term negative sum game. A negative game is a game that the majority of participants lose on average. Negative sum games include so-called gambling such as pachinko and horse racing.

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Is FX a zero-sum game?

For reference, the reasons why FX and stock investments are said to be zero-sum games are as follows. Financially, there is a high possibility that everyone will converge to zero. Why does it become so many? There are other people in Japan and around the world who have achieved results, but they are in the minority. Even if you perform technical analysis of the market, make calculations, and make predictions, it is not easy to make money by buying and selling. In general, even if you use maximum leverage, your assets will not increase easily with foreign exchange.

equivalent exchange

When trading FX, the principle of equivalent exchange is always applied. For example, let’s say you want to buy dollars when the exchange rate is 100 yen to the dollar. In order to do that, if there is no one who wants to buy yen at the same rate, the transaction will not be completed. Not only that, if you want to lock in your profits, you need someone to do the opposite transaction. A trade-off with a positive sum or zero is not like stocks or CFDs. It is not gambling. The point is that you cannot take only the good parts at once. It is important to look for an advantage in the service of buying and selling by watching some movement.

gain and lose

Applying the law of equivalent exchange means that if someone gains, there will also be someone who loses. If the value of one currency rises, the other will inevitably fall, resulting in a zero-sum game. The winning rate for settling the amount varies depending on the funds and method, but the basis of information is zero-sum. You can look at the price movements on the chart, trade with a small amount of funds, and even if you set a stop loss, you may still make a profit in the end. The basic thing to know when starting out with scalping or day trading is that there is always risk involved.

Forex reality

Even in a completely statistical analysis of FX, the term “zero-sum game” is true in theory. However, in reality, this is not the case. There are the following reasons for this. The conclusion is that there are many causes, so take proper measures and of course grow. Both contents affect short and long. Professional investors do various things to achieve significant results in day trading.

central bank intervention

Governments and central banks intervene in FX. In other words, FX fluctuates due to government intervention. When the yen suddenly weakens, the government will buy a large amount of yen to prevent the yen from weakening further. There is a high possibility of failure depending on how you do it, so it depends on your way of thinking, the percentage of the investment amount you use, and the situation. If you are worried about losing money, it is important to participate at a time other than the index. You will want to have some leeway. It is important to be able to trade according to your purpose.

tax

FX is taxed. FX is considered miscellaneous income and if it exceeds 200,000 yen, you must file a tax return yourself. This can lead to thinking of FX as a negative-sum game. This is because traders are forced to bear the tax burden. You may think that repeating profits from financial products will make you money, but you will have to pay taxes. As a result, your income will be lower.

commission

Most people use a broker for FX. Brokers charge spreads and fees immediately after opening a position. In other words, at the time of placing an order, the negative amount of the spread is already an unrealized loss. At this point, it can be said that the trade is already losing. Currently, we trade using tools to strategize and predict the future of products and companies, but in either case, fees are charged on profits and losses in foreign currency.

Is FX a negative sum game?

I think that FX is moving in a negative sum game because there is a risk that spreads and taxes will be incurred. Therefore, the zero-sum game is a lie. Including spreads and slippages makes these markets work as negative sum games, so it is not really a zero sum game.

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