This is a great question I got today from a trader.
“Someone told me if i start getting serious in trading i need to know that when i win it’s only at the expense of someone else. Is this true? Isn’t Forex just buying and selling the currency, that doesn’t have to involve someone on the other end, does it?”
This most likely was told to you by someone who either A lost a lot and wants to say the market is evil or who likes taking money and is just informing you of what they believe to be the reality. Or maybe they are just ignorant to how the market works.
Could someone lose when you win. Of course welcome to the world of competition and finance.
Is no more wrong for you to be profitable and them not-profitable than it is for your favorite sports team to beat another sports team on Sunday night football. One team makes more money if they win, more points per touch down etc… Other team the coach gets fired, players traded or worse yet cut etc… Some people will get injured during the game and will never be able to play again. They know this going into the game at the outset. There is nothing unfair about it. If you are not willing to lose don’t play. No risk no reward.
That being said… Someone has to lose for you to win in trading is a false statement and a “myth”
If you are buying your are selling to someone else. if you sell you are buying from someone else. There is always someone on the other side of a trade.
But to think you bought and sold to the same person every time on a par for par basis is pretty ludicrous. The universe is much bigger than 2 people and so is the world of trading.
Here are a few examples of why that statement is false…
CORN Farmer grows corn (could be exxon pumps oil, gold company mines gold whatever) Farmer sells corn on futures market to lock in his profit (farmer is now profitable from his expense and labor) You buy the corn future from him You sell it at a higher price to (say kellog is now the buyer) You are now profitable Kellog makes corn flakes cereal They sell it to the grocery store at a higher price (profitable) Grocerty store sells it to you, farmer, guy who works for kellog, employee at store or whomever else at higher price and makes profit That person gets to eat and nourish their body and live another day (i would say that is profitable)
So who lost in that scenario? No one
STOCK Stock company issues shares to raise capital (they receive income - company gets a big launch you buy ipo shares at 2.00 you sell them at 5.00 publically you profit someone buys them publically from you at 5 and sells them at 20 some one else buys them at 20 and collects dividens over a decade dividends cover value of the stock and next 10 years collects income for grandkids they and their grandkids profit company ends up buying back stock 20 years laters at say 15 (but more than that has been made in dividends) company now has more ownership and goes private after many years of success as a public company and keeps more of its profits and no longer has to pay out dividens
Who lost in that scenario - no one
OPTIONS One guy buys gbpusd at one price sells to you at a higher price they profit when you buy you sell 2x the amount of spreads you need the market drops against you your sprads profit more than your gbp/usd looses you close y our spreads and profit and close gbp/usd net profit but you sold spreads - someone bought them - well they happened to also sell some OTM binaries when it droppped their binaries covered their loss but then someone bought those binariies that the other person profited on yes that was the market maker - and they have a book laying off risk and delta neutraling across dozens of markets and exchanges worldwide they are find as they make enough across all trades in bid/offer to cover the losses on other trades So yes they lost eventually on the binary trade they made money overall on the bid/offer spreads off all the trades than the few losses they took being slightly off on their delta neutraling and you had nothing to do with the person that lost (being the market maker who really did not lose)
Who lost in that scenario - NO ONE
Will it always work out this way? No there will be definetely be casualaties and losses. The lesson to learn is that losses are real they do exist. Make sure you account for them and expect them. Make sure you manage your risk. Don’t become a casuality of the market. You have enough to worry about y our own risk don’t take on the worries of other peoples risk. That is like trying to play football but not try to tackle the quarterback to hard as you would hate for him to twist an ankle. YOu don’t really want to hurt hurt the quarterback but you came to stop him from making any progress on the field. He came to make progress against your team. #$&% happens. You came to play he came to play put on the big boy/girl pants and lets trade.
