Essential

Zero-Sum Game

A market situation where one participant's gain equals another's loss, with total gains minus losses equaling zero.

Definition

In a zero-sum game, the total gains of all participants exactly equal the total losses. Forex and derivatives trading are often considered zero-sum: for every profitable trade, there's a losing counterparty. However, transaction costs make it slightly negative-sum.

How It Works

  • You profit $100 on EUR/USD long
  • Someone else lost $100 on the other side
  • Total: +$100 - $100 = $0
  • Minus spreads/commissions = negative-sum

Trading Tips

1

Your profits come from other traders' losses

2

Brokers/exchanges profit from all trades

3

Edge and discipline determine long-term success

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James D. from London

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