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Comment by panarky | Hacker News Reader

Most marketplaces are not zero-sum.

For example, futures and options are zero-sum because every dollar of profit that one trader makes is offset by a dollar of loss from another trader.

But stock markets are not zero-sum. Prices can be bid up without a single share changing hands, creating new wealth out of thin air, and everyone wins. Conversely, prices can go to zero, destroying wealth and making everyone a loser.

Same thing for most other markets you can think of, from real estate to used cars to your local flea market. As with bitcoin exchanges, none of these are zero-sum since there doesn't have to be a loser for every winner.

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You're mixing the concepts of realized and un-realized profit. A market price change marks your open position and gives you an unrealized (loss)gain. But to realize that you have to trade, plain and simple. And someone must take the other side of that.

A more compelling argument against zero-sum is that traders and investors have different time frames and objectives. And, indeed, the classic argument in the futures market is that a farmer who buys a hedge from a speculator represents a potential positive outcome for both.

I start a company to make cheap autonomous flying cars. I invest $1,000 of my own money and build a working prototype. It looks promising, so you buy 50% of my shares for $10,000.

I just made a 20x return on my investment, and you own 50% of a great opportunity. Who's the loser here that makes this a zero-sum market?

Our autonomous flying cars go into production, and now your 50% is worth $100 billion, and you sell your shares to Elon Musk. Where's the zero sum?

First, I never claimed the markets were or were not zero-sum, only that your attempt to explain was wrong as it mixed realized and unrealized profit.

Second, zero sum requires a definition of utility for each participant. If those definitions vary (and they almost assuredly do) then a reasonable argument can be made that to define whether the activity is a zero-sum game or not requires a commonality amongst those utilities (dollars, for example). This is often not the case in trading (for example, the farmer hedging his crop with a speculator who seems to profit short term).

Once your company has shares, you made $10,000 for 50% of your stock which you paid $500 for. But the investor merely has your shares. So you are up $9000, whoever got your $1000 is up $1000, and the investor is down $10,000. That adds up to zero.

Again, not saying you're wrong, but your example is useless.

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