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Is stock/equity a zero sum game? how can the price of stock moves?
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Is stock/equity a zero sum game? how can the price of stock moves?

  #1 (permalink)
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Is stock/equity a zero sum game? how can the price of stock moves?

Newbie Question:

Let say Facebook "FB" gives out 1,000,000 amount of shares during IPO.

now FB is listed on NASDAQ.

For each buyer there's a seller right?

if 700,000 FB shares goes to the bull and 300,000 shares goes to the bear

who sells the extra 400,001 shares to the bull to make the price go up/higher?

or is it someone has to loose for another is to earn = zero sum game?

confused

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  #3 (permalink)
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Azharr View Post
Newbie Question:

Let say Facebook "FB" gives out 1,000,000 amount of shares during IPO.

now FB is listed on NASDAQ.

For each buyer there's a seller right?

if 700,000 FB shares goes to the bull and 300,000 shares goes to the bear

who sells the extra 400,001 shares to the bull to make the price go up/higher?

or is it someone has to loose for another is to earn = zero sum game?

confused

Once IPO occurs the shares go the the public.
One does not have to lose for another to gain.
You are a SHAREHOLDER.

Stocks Gain...you sell. It continues to go up...the second buyer gain as well.
The 3rd guy buys at the pick of the market because his barber gave him a tip, and then he loses his pants.
But he still holds on, because cutting his losses short was not on his laundry list.
Then these guys, we call them JP and M (they did the initial IPO), come out with a report that the stock the 3rd guy is holding is worthless, and it's going to zero. JP and M in the mean time scoop every single stock which they recommend to sell..and this is how the cookie crumbles on the stock side.

You know what is the moral of the story? Don't talk to your barber about stocks.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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How do the 2nd 3rd buyer buys if the stock skyrocket and everyone who bought at primary market (before IPO) dont want to sell it to them? (everyone wants to hold on to a profitable stock isn't it)

I'm trying to understand why stock is not a zero-sum game as futures/options/forex (or is it? Bank prints money)

Sent from my HTC One V using Tapatalk 2

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  #5 (permalink)
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Win at a zero sum game

OK two things to say about this.
First off a all markets are a function of demand, time and money, you might wonder why the house you buy for $400,000 one day is worth $490,000 in five years and why did you get to buy it and why someone would sell that house, but your seller might be an estate of a dead person, a divorced couple who bought that same house for $65,000 before you were born. To them a great profit, for you an opportunity. So yes it is a zero sum game but it is a market with many reasons to buy and sell. So why did the house price go up, well the "market" more people right now are buying than selling. Think what you would pay for water during a major storm, BUT if everyone sold their house on the same day, clearly the price would not be rising. Often your equity or forex buy today is form a HFT computer that just soaked you for $.02 a share but a month later you made $5 a share. A market has many participants, and many goals and many time frames!

Second, Markets trend. Want proof? Go to a 5 year chart and enter the one letter symbol, V. That is Visa, and every hedge fund on earth has been buying it like crazy, every day, every month, month in month out. The market is like a game of musical chairs, as long as you are careful to get a seat when the music stops, why cant you predict this will go higher? Bulls spot trends and get away before the game ends. Pigs keep their snout in slop till they get slaughtered. That's how a zero sum game works and yes you still can make you money if you are a bull or a bear, but not a pig.



Last edited by cme4pif; January 8th, 2013 at 11:40 PM.
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Is stock/equity a zero sum game?

If you and I traded some stock directly between the two us, then yes it would be. To use your example, if I sold you 1000 FB shares at 30 and the stock is now 32 and you sold it, then you made $2000 and I broke even because $30 is the price where I bought it.

Unfortunately, we both used brokers. You paid a broker $20 to buy FB and $20 to sell it, so your profit was really $1960. I also paid the same commissions, so I am not even, I lost $40.

So it's not a zero sum game. The brokers have drained some money from the game.

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