Is forex trading a zero sum game

Is forex trading a zero sum game

02/05/ · The Forex zero-sum game is a way of trading and earning a second income with a lower risk than equities. Because you own two currencies, your investment cannot go to zero. Currencies are also less volatile, especially the major currencies such as USD, EUR and GBP 12/11/ · Bank traders know trading forex is a zero sum game therefore their behavior in the market will always be based on making as many people as possible lose money. This is a common example of how bank traders take money from the retail blogger.comted Reading Time: 9 mins 14/04/ · Principles of economic theory will tell you that the forex market meets the criteria of a zero-sum game, but not for all participants. Central banks are at the top of the totem pole in terms of forex hierarchy, and they do not play a zero-sum game when they enact national monetary policies or balance their reserves

Is Forex Trading a Zero-Sum Game?

Believe it or not there are certain aspects of the forex market which make it very similar to a game. How much you can potentially gain in a game of poker depends on how much money the other people have decided to risk, if there are four players in a game of poker and they is forex trading a zero sum game decide to risk £20, each, the person who wins at the end of the game will acquire £60, Now for the important part, the poker example described above is almost exactly how the forex market essentially works.

Contrary to popular brief no money actually gets made in the forex markets, instead what happens is it gets transferred from one set of people to the other, the same as in poker. In trading the set of people who are characteristically said to always make money are the bank and hedge fund traders, is forex trading a zero sum game. The money these traders make comes from the people who typically tend to lose is forex trading a zero sum game in the market, which are retail traders with no professional trading background.

For the most part this is incorrect, although they do have advantage when it comes to information flow for example they may have a heads up on what impact a news event might have in the market before its released they generally have access to the same tools as us, the only difference is they use them in a different way.

Whereas retail traders will look at a chart of currency in terms of technical analysis i. e support and resistanceswing highs and lows etc the bank traders are looking at these tools to but from a different perspective. Bank is forex trading a zero sum game are attempting to predict the market by understanding what the retail trader is going to do.

Each day in the forex market how much money can be made is entirely dependent on how many people decide to put money at risk. Ifpeople place a trade tomorrow and they have all risked £10 each that means the maximum amount of money that can be made for that day is £1, Now if we woke up tomorrow and no one decided to place a trade then two things would happen:.

This is why understanding the implication of what it means to be trading in a zero sum market can have a dramatic effect on your trading. Whenever you make money on a trade how much you make is determined by how many people have lost, conversely when you lose money on a trade that money has been taken by another trader or traders who have anticipated the market direction better than you.

If your analysis focuses on anything other than identifying where people are gonna lose money then your potential profits will be much smaller than those who do. They know they only way for them to make profits is to identify a situation where a lot of people are likely to lose money by taking some course of action lets say placing a buy trade for example then taking the opposite action, selling against the people who have brought.

This is why you commonly see people make gigantic profits during financial crashes. When the markets crashed in he made 4 billion dollars in a single year betting on the mortgage crisis that would eventually bring about the major rescission which bought the financial integrity of the world to a standstill.

Because he knew a situation was setting up that was going to cause a lot of people heavy financial loss. This is what you need to be doing when looking at your charts for trading opportunities, is forex trading a zero sum game. In my supply and demand article I talk about how the strength of the move away is not a determining factor in whether the zone is considered strong or not. I want you to look at this image and think about the psychology of the people who are short when the market moves up creating this demand zone.

The banks have brought down here because they know if the market moves up all the traders who are short in the market will probably close their trades, resulting in the banks making significant profits.

Bank traders know trading forex is a zero is forex trading a zero sum game game therefore their behavior in the market will always be based on making as many people as possible lose money. This is a common example of how bank traders take money from the retail traders.

Now they have loads and loads of buy orders available to place the remaining sell orders from the banks. When this is completed the market begins moving lower and eventually the process described above will repeat itself in the other direction.

It happens everyday on every currency on every time frame. The banks will always make the market move in the direction which causes the greatest amount of financial damage to the maximum amount of traders.

When you look at your charts what your really seeing is people making and losing money, is forex trading a zero sum game. Gone will be the days of just looking at technical levels and using them on their own to anticipate market direction, now you will be thinking about what the other traders looking at these levels are likely to do and basing your trade-off of that instead.

oh i never knew about this concept i wish i had learn this long time ago, and i am going to buy your book of How the large institutions operate in the markets, thank you for this great material. Gilberto Camacho. Save my name, email, and website in this browser for the next time I comment.

Think of these aspects as if they were like rules in a game. Poker And The Forex Market Have you ever played poker before? In a game of poker how many winners are there at the end of a game, is forex trading a zero sum game.

One right? Where does this money come from? The other players! There can only be one winner. I can sum the difference in perspective up with a statement. Retail traders are trying to predict the market direction using price. What Really Happens In The Market Each day in the forex market how much money can be made is entirely dependent on how many people decide to put money at risk.

Now if we woke up tomorrow and no one decided to place a trade then two things would happen: Number 1 nobody would be able to make any money. Look at John Paulson for example. How was he able to make 4 billion in one year? Real Trade Examples In my supply and demand article I talk about how the strength of the move away is not a determining factor in whether the zone is considered strong or not.

You may remember this image I used to explain the point. You too can trade like these banks. Comments oh i never knew about this concept i wish i had learn this long time ago, and i am going to buy your book of How the large institutions operate in the markets, thank you for this great material, is forex trading a zero sum game.

Leave a Reply Cancel reply Your email address will not be published. Comment Name Email Save my name, email, and website in this browser for the next time I comment.

What is a Zero-Sum Game?

, time: 1:51

Forex Trading is a Zero-Sum Game, But You Can Make It More Productive - Compound Daily

12/11/ · Bank traders know trading forex is a zero sum game therefore their behavior in the market will always be based on making as many people as possible lose money. This is a common example of how bank traders take money from the retail blogger.comted Reading Time: 9 mins 26/09/ · This destroys the oft-repeated fallacy that every Forex trade is a zero-sum game. By the way, stock trading is not a zero-sum game either. Suppose you buy shares of XYZ at $40, and sell it at Estimated Reading Time: 8 mins 02/05/ · The Forex zero-sum game is a way of trading and earning a second income with a lower risk than equities. Because you own two currencies, your investment cannot go to zero. Currencies are also less volatile, especially the major currencies such as USD, EUR and GBP