[yorwba]

If you buy something at $10 and sell it at $15, where are the $5 profit coming from? From the other market participants, e.g. someone selling to you for $10 and later buying it back for $15, losing $5 in the process. Your profit and their loss sum to zero, which is what "zero-sum" means.

It has absolutely nothing to do with opportunity cost, or whether you, personally, are a "loser". But if you're a "winner", someone else must be the "loser".

[traK6Dcm]

In this simple example, yes, but you are assuming that monetary value = utility. That's not always the case. People have all kinds of different incentives for participating in the markets.

Let's say I am a market maker offering to buy Apple shares at $99 and sell them at $100. Let's take an ex-Apple employee who owns some shares. He just had a family emergency and wants to liquidate his shares to get cash, and he needs it quickly. He doesn't care about paying a few dollars extra in exchange for a quick trade because he needs to pay a bill tomorrow. I buy his shares for $99. He is happy because he immediately got his cash.

On the other side, there is a a retail investor doing long-term investment and wants to add Apple to their portfolio. They also don't care about a few cents because they're holding the stock for a decade and love the new CEO. They buy my Apple shares from me for 100.0. They are happy because I can guarantee them a stable price for a decent number of shares.

All participants are happy. I just made $1 from the spread for providing liquidity, the investor got the long-term investment they wanted, and the ex-Apple employee got his cash.

Sure, both sides of the market could have made more optimal trades if they had put in more effort and "optimized" their trades with algos and somehow skipped the middle-man, but they would've sacrificed convenience and time, which may be worth more to them than the little bit of extra $ they paid. Aren't we all winners?

When you go buy bananas in your grocery store you also don't complain about them taking a cut for providing liquidity. You don't say the farmer has "lost" money because the consumer paid more than what the farmer originally sold for to the grocery store. The farmer is happy because otherwise he may not have traded at all or his bananas may have gone bad (= needs to trade quickly). This is no different.

[ivalm]

Asset values can just increase. Alice who has $10 and 0 units buys 10 units from Bob who has 10 units and $0 dollars. Alice then sell back to Bob 5 units for $10 dollars. Alice now has 5 units (worth $10) and $10, Bob now has 5 units (worth $10). Total wealth in the system went from $20 to $30.

In addition, companies produce things, some of that wealth gets returned to the investors through dividends, interest (eg on bonds) and buy backs (in my example, let's say each unit generates $1 in dividend, now total wealth is $40(!) while starting at $20, including $20 cash (starting from $10) and $20 worth of units (starting from $10)).

In fact, we see this growth everywhere around us as both the amount of people and the amount of goods and services per person is increasing!

[usefulcat]

Market makers (market participants who are interested in either buying or selling) are like used car dealers. If you are in the market to buy or sell a car, you could choose to find a buyer or seller yourself, and you may well get a better price going that route. It will also usually require more work from you and take longer than if you just went to a car dealer. So that's the tradeoff: save time via an intermediary (who will likely profit from the transaction), or do more work yourself and possibly get a better price.

[enaaem]

You didn't take another very important unit into account: time and risk. Let's say you want to sell your used iPhone. You might get $150, if you wait around for the right buyer, but this might take a while and even after waiting it is not guaranteed you find a buyer for that price. The price could even go down to $80. Alternatively you could go to a pawnshop and get $100 dollars instantly. And if you are happy with that price you can go on with your life and focus on other things.