I've heard various sources from other forums and publications differ as to whether Forex is actually a zero-sum game. (i.e., if you win, someone else loses) Here are some arguments for and against that assumption:
Forex is a Zero-Sum Game:
-Each position you hold, long or short, there will be someone else on the other end who will be losing money if it goes in the direction you want. (think about the mechanics of exchaning the money and variable rates)
-Forex is often lumped in with futures, etc. as a risky market.
Forex Is Not a Zero-Sum Game: (my position, although I think in some ways it is a zero-sum game)
-The market moves based on psychological and fundemental underpinnings.
-Not all speculation in the market (exchanging of currencies) is based on profiting. (businesses, individuals, etc. can also trade one currency for another)
-Market price is based more on the enthusiasm of buyers and sellers, and not just the underlying mechanics of the exchange rate. (just as in the stock market the price may have little correlation to the actual value of the firm.)
What are your thoughts? I think in some cases there are points when banks and institutions can throw their weight around to take out stops, but overall, one institution cannot just "gobble up" a small fish. Why? Market price is driven primarily by the enthusiasm and psychology of millions of instititions, traders, and currency exchangers - all creating price patterns which can be used to make a profit.
I think it's important to clear these issues up in order to better grasp the dynamics of the market.
Forex is a Zero-Sum Game:
-Each position you hold, long or short, there will be someone else on the other end who will be losing money if it goes in the direction you want. (think about the mechanics of exchaning the money and variable rates)
-Forex is often lumped in with futures, etc. as a risky market.
Forex Is Not a Zero-Sum Game: (my position, although I think in some ways it is a zero-sum game)
-The market moves based on psychological and fundemental underpinnings.
-Not all speculation in the market (exchanging of currencies) is based on profiting. (businesses, individuals, etc. can also trade one currency for another)
-Market price is based more on the enthusiasm of buyers and sellers, and not just the underlying mechanics of the exchange rate. (just as in the stock market the price may have little correlation to the actual value of the firm.)
What are your thoughts? I think in some cases there are points when banks and institutions can throw their weight around to take out stops, but overall, one institution cannot just "gobble up" a small fish. Why? Market price is driven primarily by the enthusiasm and psychology of millions of instititions, traders, and currency exchangers - all creating price patterns which can be used to make a profit.
I think it's important to clear these issues up in order to better grasp the dynamics of the market.