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Question on the Stock Exchange
07-20-2016, 06:01 AM
Hey guys. I know there are some pretty well experienced guys on here so I wish to ask this. When someone makes money on the stock market, must someone else be losing money?
This could be through the stock market, foreign exchange or bonds. Is it true that when someone makes a profit, does someone else have to be losing money (which is out of their control)?
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Question on the Stock Exchange
07-20-2016, 06:26 AM
No it is not a zero sum game.
Trading in derivatives (futures and options) however is.
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Question on the Stock Exchange
07-20-2016, 07:22 AM
Use the search function Cobra and robreke have dropped quite a bit on the Finanace industry.
"Until the day when God shall deign to reveal the future to man, all human wisdom is summed up in these two words,— 'Wait and hope'."- Alexander Dumas, "The Count of Monte Cristo"
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Question on the Stock Exchange
07-20-2016, 07:47 AM
The answer to your question, in the big picture, is no; someone does not have to be losing money when someone is making money in the stock market.
I think you are confusing the buy/sell stock transfer with the overall value of the business over time.
In the smallest view, one person buying shares at the same price another person selling shares, is zero sum. Since, except for commissions charged by the brokerage firm to both sides, the purchase price equals the sales price.
But in the larger picture, people are buying and selling ownership interests in a business. If the business does well and grows over time, and treats the equity holders properly (i.e. management does not pay themselves large salaries, they pay out a dividend and increase the dividend over the years, insiders do not dilute the existing shareholders) then the value of that ownership increases, becomes more valuable over time, and all shareholders benefit.
On the other side, if a business does poorly, or the insiders treat the equity owners poorly (never pay dividends, constantly issuing more common shares and diluting existing shareholders' ownership, insiders paying all of the profits to themselves in the form of large salaries), then shareholders do lose over time and suffer.
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Question on the Stock Exchange
07-20-2016, 08:15 AM
It's an honest question, though it would be better served in the lifestyle section.