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.
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.
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