Zero-Sum Game in Forex Market

In Forex market, change in currency value which leads to fluctuations in foreign currency exchange is a different concept from those in stock market. Changes in currency rate are the ratio of exchange in between two countries, in other words, Forex fluctuation happens when value of one currency drops and increases in another.

For instance, in last two decades, 1 USD (United States Dollar) could exchange for 360 JPY (Japanese Yen). But now, 1 USD only can exchange for 114 JPY. This simply means that JPY has increased, and USD has dropped in value.

Therefore, no matter how the currency rate changes, the total sum of value of both currency pair will not increase, and of course, will not decrease.

Hence, some may describe Forex trading is nothing but a “zero-sum” game. To be more specific, it is a transfer of wealth. Recently, funds flowing into currency market has increased significantly, rate of changes is also getting higher and higher, which caused amount of wealth transferred has become more, and faster.

Assuming there is a daily transaction of USD 30 trillion in global Forex market, either increase or decrease by 10%, there will be USD 3 trillion will get new owners.

Despite drastic fluctuation in Forex market, but there will be no currency that has no value at all. Although one currency plummeted consistently, yet it still has a certain value embedded in it, unless it has been announced to abolish this currency.

P/S: “Zero-Sum Game” is a concept in Game Theory, means that both parties in a game, when one gains then the other one will lose.