6 ms·

> The entire trading industry is a zero-sum game bro. It's not, and even a cursory understanding of what zero-sum games are and how the stock market works woul

> The entire trading industry is a zero-sum game bro. It's not, and even a cursory understanding of what zero-sum games are and how the stock market works would tell you that. How does the market grow if all trades are zero-sum? How do recessions happen if all trades are zero-sum? Some portion of trades are zero-sum, maybe even most of them. Stock markets don't function if every trade was zero-sum. Pump and dump schemes are bad because they distort information in the marketplace. The tradeoff is supposed to be that these major firms perform price discovery, and in exchange for providing accurate prices to the market, they are allowed to arbitrage off the difference between the current price and the "true" price. Pump and dump schemes don't do any price discovery, they do the opposite. They create a fake new price, arbitrage off that difference, and then leave the followers holding the bag.

amne 3y ago
it's not, but only because someone keeps printing more money.
Solvency 3y ago
It's almost like a financial system that is so incredibly prone and vulnerable to manipulation shouldn't form the backbone of our entire economy. Oh wait. This is by design so the elite can retain all money and power.
__MatrixMan__ 3y ago
> How does the market grow if all trades are zero-sum? The same way a cancer does: by repurposing adjacent systems in service of propagating itself, often to the determent of the function of those systems. In the case of a financial market this means people spending their time watching lines squiggle around on a screen instead of finding real problems to solve. Referring to the increase of stock prices as an indicator that markets are positive sum is a little like referring to an increase in hit points as an indicator that D&D is positive sum It's not useful to use a system's own abstractions to measure its effectiveness.
- gmd63 3y ago
  Cancer is an exploitation of the politics present in human cellular biology. The DNA of what makes us human mammals is molecular capitalism in this analogy. You can dismantle that, but then we would be floating amoebas in the primordial ooze. What you can do is identify when cells aren't behaving in good faith and punish them appropriately (through chemo etc) and find ways to prevent that behavior from surfacing again (diet / avoiding carcinogens / unknown future solutions).
  - __MatrixMan__ 3y ago
    Agreed, I'm not for dismantling it wholesale, just for being a bit more targeted with our punishments. That is, I don't think that "the markets are up" is not an adequate indicator of "behaving in good faith". You have to look more closely at the actual outcomes. Whatever is being invested in, does it make life better or worse for the rest of us, etc.
    - gmd63 3y ago
      I agree we need more keen punishments, and am annoyed by market value being some coarse indicator for economic health. It's been more morally pleasing to me to see criminal companies and "currencies" collapse in the past few years than it has for me to have seen the general market go up, as long term health depends on excising fraud.
- seadan83 3y ago
  Outside money flows into the market, this allows it to be positive sum. For the DnD analogy, it is as if you had a cleric. Eg: IPO sells at $2, next seller buys at $4, next at $6, etc. Everyond makes money in that scenario. Eventually there can be losses, do all the losses counter balance these profits? No, because on net everything went up. If there were always trades that had losses to balance the gains, only then it would be zero sum. What's more, people convert types of holdings all the time, and it is the big players that move things. When a mutual fund allocates 1% more to stocks, or 1% less and putd that to bonds, those are very big net new or net negative money flows. So, it's not just paychecks being added in, there are lots of sources of dynamism to make the stock market system anything but closed. There is net new money flowing into it all the time.
ItsMonkk 3y ago
The trading industry is separate from the investing industry. The investing industry is positive sum - but you must hold for the long-run, or only make decisions if new information is discovered to be an investor. Vanguard and other passive firms are a part of the investing industry. As the GP says, the trading industry is zero-sum.
- mhluongo 3y ago
  Not a fan of over-financialization, but... if trading is propagating market signals to people who otherwise wouldn't have them, it should have some positive externalities?
EGreg 3y ago
The stock market grows because companies create value for real consumers. Companies serving the people. But the stock market and its derivative markets are just people speculating on the price of the stock. So the vast majority of the value is a zero sum game. Think of it like the "use value" of a house, vs a housing speculative bubble on top. They can pump, they can dump.

amne 3y ago

it's not, but only because someone keeps printing more money.

Solvency 3y ago

It's almost like a financial system that is so incredibly prone and vulnerable to manipulation shouldn't form the backbone of our entire economy. Oh wait. This is by design so the elite can retain all money and power.

__MatrixMan__ 3y ago

> How does the market grow if all trades are zero-sum? The same way a cancer does: by repurposing adjacent systems in service of propagating itself, often to the determent of the function of those systems. In the case of a financial market this means people spending their time watching lines squiggle around on a screen instead of finding real problems to solve. Referring to the increase of stock prices as an indicator that markets are positive sum is a little like referring to an increase in hit points as an indicator that D&D is positive sum It's not useful to use a system's own abstractions to measure its effectiveness.

gmd63 3y ago
Cancer is an exploitation of the politics present in human cellular biology. The DNA of what makes us human mammals is molecular capitalism in this analogy. You can dismantle that, but then we would be floating amoebas in the primordial ooze. What you can do is identify when cells aren't behaving in good faith and punish them appropriately (through chemo etc) and find ways to prevent that behavior from surfacing again (diet / avoiding carcinogens / unknown future solutions).
- __MatrixMan__ 3y ago
  Agreed, I'm not for dismantling it wholesale, just for being a bit more targeted with our punishments. That is, I don't think that "the markets are up" is not an adequate indicator of "behaving in good faith". You have to look more closely at the actual outcomes. Whatever is being invested in, does it make life better or worse for the rest of us, etc.
  - gmd63 3y ago
    I agree we need more keen punishments, and am annoyed by market value being some coarse indicator for economic health. It's been more morally pleasing to me to see criminal companies and "currencies" collapse in the past few years than it has for me to have seen the general market go up, as long term health depends on excising fraud.
seadan83 3y ago
Outside money flows into the market, this allows it to be positive sum. For the DnD analogy, it is as if you had a cleric. Eg: IPO sells at $2, next seller buys at $4, next at $6, etc. Everyond makes money in that scenario. Eventually there can be losses, do all the losses counter balance these profits? No, because on net everything went up. If there were always trades that had losses to balance the gains, only then it would be zero sum. What's more, people convert types of holdings all the time, and it is the big players that move things. When a mutual fund allocates 1% more to stocks, or 1% less and putd that to bonds, those are very big net new or net negative money flows. So, it's not just paychecks being added in, there are lots of sources of dynamism to make the stock market system anything but closed. There is net new money flowing into it all the time.

ItsMonkk 3y ago

The trading industry is separate from the investing industry. The investing industry is positive sum - but you must hold for the long-run, or only make decisions if new information is discovered to be an investor. Vanguard and other passive firms are a part of the investing industry. As the GP says, the trading industry is zero-sum.

mhluongo 3y ago
Not a fan of over-financialization, but... if trading is propagating market signals to people who otherwise wouldn't have them, it should have some positive externalities?

EGreg 3y ago

The stock market grows because companies create value for real consumers. Companies serving the people. But the stock market and its derivative markets are just people speculating on the price of the stock. So the vast majority of the value is a zero sum game. Think of it like the "use value" of a house, vs a housing speculative bubble on top. They can pump, they can dump.