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Module 1 – Lesson 6 – Negative Zero-Sum Game

The foreign exchange market is at best a zero–sum game, meaning that whatever one trader gains, another
loses. However, brokerage commissions and other transaction costs are subtracted from the results of all
traders, making foreign exchange a negative-sum game.

1. what is a zero-sum game?
A Zero-sum game is any game or activity where a participant gains or loss is exactly balanced with the losses
and gains of the other participants. If the total gains are added together and the total losses subtracted the
sum will be zero, hence the name zero sum game. Poker is one example of a zero-sum game where players
can only gain at the expense of other players.

2. is forex a zero-sum game?
Technically Forex is in fact at best a zero-sum game as any gains made by one trader are equal to the losses
of other traders. As currencies are traded in pairs, if one trader buys one lot in the EUR/USD and another
trader sells one lot of the pairing any gains by one trader will be equal to the losses of the other trader. Thus,
Spot Forex can accurately be described as a zero-sum game.

It has been argued that Forex is not a zero-sum game as not all participants in the spot market are making
speculative transactions. This does not change the fact that overall the Spot Forex market is at best a zero-
sum game as total gains will always be equal to total losses.

For retail traders spot Forex is in fact a negative sum game. A negative sum game is any game or activity
where the sum of total gains and losses is negative i.e. below zero. The reason why spot Forex can be
considered a negative sum game is that traders incur substantial costs when trading the currency markets.
Brokerages charge a marked up spread or commissions to traders, these mark-ups and commissions are
used by the brokerages to cover their costs and to earn a profit. This means that the sum of gains and losses
is in fact negative making Forex a negative sum game.

3. is all forex trading a zero-sum game?
When trading is made for the purpose of making FX payments, it’s still a zero-sum game because eventually
any trader will have to pay spreads on the Buy / Sell of a currency, but since there’s not one trading against
you, there’s nothing negative about it.

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