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Is the Stock Market a Zero-Sum Game?
I've heard both:
Yes: "For every buyer at a price, there is a seller."
No: "If a company has 1000 shares outstanding @ $10/share, and I buy 1 share for $11, I've changed the value of the stock to $11, creating $999 of "value". Similarly, if I then sell that one share for $9, I've only lost $2, but destroyed $999."
So which is it?
3 Answers
- Net Advisor™Lv 71 decade agoFavorite Answer
Your on the right track, but it is like this.
"For every buyer, there is a seller." However keep in mind that you don't control the price.
A company with 1000 share float would not be a realistic float. Most large, legit companies have 100's million if not billions of shares outstanding.
The values of such stocks can increase or decrease by 10's, and 100's of millions or billions every day.
- 5 years ago
I think "no body" explained it very well. If the day trader knows how to make profitable successful trading, he wins. He makes money, in fact stock market is a very helpful way to make a quick money, and made too many people way rich. But some people, think it is easy because of the fast way to make money, unaware that chances of making/Losing is 50/50 for fresh investors. If you have knowledge and experience and aware of the market conditions around you, then the probability of making money is quite high, and the risks are low. The broker is charging very less amount of money (between $5 - $15 per trade). This is very low price. The broker charges you regardless of making/losing money. Even if you make $ 100,000 or even higher, the charge is still $15 depending on the brokerage firms. However, if you ask a financial advice from the firm, they will definitely charge you extra. Remember, Brokerage firms are businesses that need to make money to keep the business alive. That's way they are charging some fees and commissions. In brief, if you don't know what are you doing, don't trade stocks, because it will look like gambling game which can be with or against you.
- zman492Lv 71 decade ago
No, stocks are not a zero-sum game.
Options and futures are examples of zero-sum games.
The question is not "Is there a buyer for every seller?" but "Is there a short position for every long position?" to determine if it is a zero-sum game.
As long as there is a short position for every long position, every time one person makes a dollar someone else loses a dollar. That makes the total average return (before expenses) zero.
With a stock, there can never be as many short positions as long positions. When a company first issues shares there are no short positions. After that, every time someone shorts a share one new long share is essentially created, so there will always be more long shares than short shares. That, in turn, means when the price of the stock goes up more money is made than lost, so it is not a zero-sum game.