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Negative Sum Game

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Definition of 'Negative Sum Game'

Futures trading is often referred to as a Zero Sum Game, however, it is actually a Negative Sum Game.

If you look at the gross results of the transactions for a particular symbol during a give time period then the sum of the gains and losses for all traders will be zero. However, each trader will incur trading costs and this will reduce the profits from the wining trades and exacerbate the losses.

Costs such as software, hardware, commissions, subscriptions etc. are essential expenses when trading. They do, however, turn a theoretically Zero Sum Game into a Negative Sum Game.

As an analogy to this you can think of Texas Hold-em poker. Again this is a theoretically Zero Sum Game as the total amount of money that the players walk away from the table with is the same as what they arrived with. However, if you play this at a table in a casino then the casino will take a rake for each hand played. This means that the total money the players leave with will be less than what they arrived with.

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