Zero-Sum

A situation in which one participant's gain is matched by another participant's loss, so total gains and losses offset.

Example

In a currency pair, if one currency gains against the other, the other has lost the same relative amount.

Important

Once trading costs are included, a zero-sum market becomes negative-sum for participants as a group.

Related terms

  • Speculation — Putting money at risk on an outcome you cannot analyse with any real confidence, hoping for a large payoff.
  • Transaction cost — What it costs to trade rather than to hold: commission, the spread between buying and selling prices, any tax on the trade itself, and the price movement a large order causes.

Lessons that explain it

  • Price moves, interest differences and leverage - in a market where one side's gain is the other's loss — Forex returns come from exchange-rate moves and interest-rate differences, magnified by leverage, in a market that is roughly zero-sum before costs and negative-sum after them. (12 min)

All 578 terms in the Investing glossary