Welcome to lecture three, zero sum markets. In essence, zero sum markets mean that there must be both a buyer and a seller at any price traded in the market. So if you wanted to buy the pound dollar, this currency pair up $1 50, then somebody else must want to sell at $1 50. So this creates an immediate conflict, because you want the price to rise in order to make a profit. And the other trader wants the price to fall in order for them to make a profit. One of you inevitably will be a winner, and the other will be a loser.
So how does the zero sum market work? So let's look at this as an example. So if say for example, you had three three friends playing poker Each of them with $500 each as you can see, they would have there would be a total of $1,500. So at the end of the night, each guy now has say, one has 100, another has 1000. And then the third has 400. As you can see, money has exchanged between each of them, but the total is still still 1500.
And this is exactly how a zero sum market works. No money is created, it simply transfers from the loser to the winner. And what does that mean for you as a trader? Well, now you have to get comfortable with the fact that at the other end of your transaction, is somebody on the other side of your trade, wanting to take your money, that person may also be a professional. So what does that mean for your trading? Well, it means that in a zero sum, Mark It which the Forex market is.
Money is not created, made or lost, it just merely transfers from one party to another. In any transaction, there must be both the buyer and the seller willing to trade at that price. And ultimately what that means is when someone wins, someone else has to lose. So to summarize, there is only one market in forex, you are trading against some of the best in the business. When you enter the trade, you believe that price is going to go in one direction, but the person who's taken the other side of your trade thinks that the price is going in the opposite direction. And what I've just put at the bottom here is a famous quote by Warren Buffett and it says if you've been in a game 30 minutes and you don't know who the Patsy is, then you're the Patsy and this is extremely it's exactly what you know the professional trader is hoping to do he's looking out for for amateurs.
You don't understand how the markets work in a hope to take the other side of their trade, and ultimately to take their money. In the next lecture, we'll look at why prices move. And what does this mean for you as a professional trader.