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My understanding of your comments is influenced strongly by this statement: > Thus, any analysis that averages across market participants' P&L will conclude th

My understanding of your comments is influenced strongly by this statement: > Thus, any analysis that averages across market participants' P&L will conclude that futures trading is unprofitable[0], except for the market makers. This is true regardless of the savvy of market participants. By virtue of offering various services to market participants, savvy market operators can consistently generate profit. In the context of this article, I took your statement to mean that any given participant cannot consistently do so. At the same time, the end users entering into these transactions understand they will be paying these fees, just as a firm expects to pay a fee to borrow money from a bank. If we describe this process as a zero-sum game, it gives the impression that trading is a speculative casino, reallocating money to participants at random (the misconception). If we describe it instead as negative-sum, where participants are paying/paid for services, it better reflects the economic value of the transactions. > ignoring/averaging across trades with non-daytraders I didn't see this bit for some reason when originally responding to your comment. Had I, my comment would have been stated differently.

mattkrause 7y ago
That's not what zero-sum means. The definition of a zero sum "game" is simply one where the participants' payoffs (here, profits) sum to zero. Nothing in the definition prevents some participants from being better players than others. As you noted above, some entities might also prefer to "buy" stability for their main operation instead of trying to minimize their spending on some of its inputs. Nevertheless, for every dollar made on futures, someone has lost (at least) that much. Except for the market-maker, the entire thing is a closed system. Thus, you'd expect the average return, across everyone trading the contract, to be zero, which is exactly what this paper shows. The paper does show 47 people who turned a profit. Their analysis can't distinguish between rubes who haven't (yet) reverted to the mean and savvy traders with some kind of effective edge. It would be interesting to see what the loss distribution looks like.

mattkrause 7y ago

That's not what zero-sum means. The definition of a zero sum "game" is simply one where the participants' payoffs (here, profits) sum to zero. Nothing in the definition prevents some participants from being better players than others. As you noted above, some entities might also prefer to "buy" stability for their main operation instead of trying to minimize their spending on some of its inputs. Nevertheless, for every dollar made on futures, someone has lost (at least) that much. Except for the market-maker, the entire thing is a closed system. Thus, you'd expect the average return, across everyone trading the contract, to be zero, which is exactly what this paper shows. The paper does show 47 people who turned a profit. Their analysis can't distinguish between rubes who haven't (yet) reverted to the mean and savvy traders with some kind of effective edge. It would be interesting to see what the loss distribution looks like.