[Maxatar]

Everyone can make or lose money depending on whether the value of the stock goes up or down and whether the participants own the stock or are borrowing it (short/negative ownership).

You mention two factors that can introduce new capital into the system, new investors and dividends, but seem to imply they are negligible or can be ignored... on the contrary those two factors are quite significant contributors and according to some theories dividends are the ultimate and total source of value in the stock market:

https://en.wikipedia.org/wiki/Dividend_discount_model

[wat10000]

The value of the stock going up doesn't mean everyone makes money. Everybody's stuff is worth more on paper, but they can't convert it to money unless they sell it, which means someone else had to buy it and convert their money into stock. The total amount of money remains constant.

I didn't mean to imply that those two factors are negligible. Only that they're not part of "trading," i.e. trading is zero-sum but these make the system as a whole not zero-sum. I was responding to "Pension funds, banks, HFT firms can all make money while trading with each other." Which suggests that you don't need other things for everyone to make money, it can happen purely by trading.

[Maxatar]

If you just mean a closed group of people are passing around stock among each other, never able to collect a dividend or add new participants, then sure such a system would not be positive sum.

But the participants listed, pension funds, banks, HFTs, etc... are not just trading with each other in a closed system. These participants can all trade with each other and all gain from one another precisely because there are dividends paid out, and new participants.

Pension funds need to liquidate or rebalance their portfolio on a short notice or daily basis, so they benefit from trading with HFTs who can take on virtually arbitrary inventory and quickly hedge it, charging a very small and implied fee (usually from a spread or some other implied mechanism), who in turn offload that inventory onto a bank or another pension fund, etc etc...

These participants can all benefit from one another's involvement in the market instead of competing against each other.