InvestorQ : Can you tell me if short term trading in equities tends to be a Zero sum game?
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Can you tell me if short term trading in equities tends to be a Zero sum game?

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3 years ago
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Let us assume that you are a trader who has placed an order to buy 500 shares of Reliance Industries at Rs.925. As a trader, your stop loss has been placed at Rs.915 and your profit target is at Rs.950. There are 2 scenarios possible. Let us first assume that after 4 days the stock of RIL touches Rs.950. You book profit of Rs.25, but does it lead to a loss of Rs.25 for the other party? Not necessarily. That is only true if the other party to the trade has done an exact reverse trade. But the other person could have sold RIL at Rs.925 because he had bought it at Rs.800 and may have shifted the money to another stock which has appreciated 10% in the last 5 days. In this trade, both are better off! The reason trading in equities is not a zero sum game is that the needs and perspective of the two parties to trade are different and it is this asymmetry that ensures that trading in equities is not a zero sum game.

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