Skip to main content

A Minus-Sum Game

Image
By
A Minus-Sum Game :

Winners in a zero-sum game make as much as losers lose. If you and I bet $20 on
the direction of the next 100-point move in the Dow, one of us will collect $20 and
the other will lose $20. A single bet has a component of luck, but the more knowledgeable
person will keep winning more often than losing over a period of time.
People buy the industry’s propaganda about trading being a zero-sum game, take
the bait, and open accounts. They don’t realize that trading is a minus-sum game.

Winners receive less than what losers lose because the industry drains money from
the markets.
For example, roulette in a casino is a minus-sum game because the casino sweeps
away between three and six percent of every bet. This makes roulette unwinnable in
the long run. You and I can get into in a minus-sum game if we make the same $20
bet on the next 100-point move in the Dow through brokers. When we settle, the
loser will be out $23, and the winner will collect only $17, while two brokers will
smile on their way to the bank.
Commissions and slippage are to traders what death and taxes are to all of us.
They take some fun out of life and ultimately bring it to an end. A trader must support
his broker and the machinery of exchanges before he collects a dime. Being
simply “better than average” is not good enough. You have to be head and shoulders
above the crowd to win a minus-sum game.

Comments

  1. Phani KumarJuly 28, 2020 at 3:06 PM


    Hey, thanks for the information. your posts are informative and useful.
    Hercules Hoists Ltd

    ReplyDelete

Post a Comment

Popular posts from this blog

Commissions

By
Commissions: Commissions have become much smaller in the past two decades.Twenty years ago, there were still brokers who charged one-way commissions of between half a percent and one percent of trade value. Buying a thousand shares of GE at $20 a share, with a total value of $20,000, would have set you back $100 to $200 on the way in—and again on the way out. Fortunately for traders, commission rates have plummeted. The extortionate rates haven’t completely disappeared. While preparing this book for publication, I received an e-mail from a client in Greece with a small ac- count whose broker—a major European bank—charged him a $40 minimum on any trade. I told him of my broker whose minimum for a hundred shares is only $1. Without proper care, even seemingly small numbers can raise a tall barrier to success. Look at a fairly active trader with a $20,000 account, doing one roundtrip trade per day, four days a week. Paying $10 one way, by the end of the week he’ll spend $80 in commi...
18 comments
Read more

SIPs - A habit to inculcate

By
The one conscious habit that everyone needs to adopt is the habit of SIPs. Saving something every month and investing it systematically in mutual funds is a habit that most of us should inculcate. It's not that hard and the long-term benefits are fabulous. Cultivating the SIP habit frees you from having to decide when and how much to invest. SIPs are in this sense the best way to invest in equity funds. Systematic investments average out the cost of your unit purchases, they don't put you at the risk of catching a market peak, and they earn you the benefit of compounding. And probably the most important benefit, from a non-technical perspective, is that SIPs force you to save and invest that definite amount periodically. Money saved is money earned, we know that. And in the case of SIPs, money invested is money that works to earn more money for you. Now, isn't that a habit you could get used to?
13 comments
Read more

WHAT ARE THE DIFFERENT TYPES OF IPO?

By
Types of IPO: Fixed Price Issue Book Building Issue The issues differ on these factors which are tabled as below. Fixed Price Issue Book Building Issue   Pricing   The Share Price Is Fixed On The First Day Of Issue And Is Printed In The Order Document.   The Exact Share Price Isn’t Fixed. Only The Price Band Is Fixed. The Price Is Fixed After The Closing Date Of The Bid.   Demand   It Is Known Only After The Close Of Issue.   It Can Be Known Every Day.   Payment  The Payment Should Be Done 100% In Advance. Refund Is Given After The Allocation.  The Payment Can Be Made After The Allocation.   Reservations  50% Of The Allocations Are Reserved For Investments Below 2 Lakhs, And The Rest For High Amount Investors.  50% Of Allocations Are Reserved For The QIBs. 35% For Small Investors And The Rest To Other Categories Of Investors.
8 comments
Read more