It is still tempting to assume each exact transaction is zero sum (while the macro level invisible hand is yielding positive sum) but that would be a mistake. First, there may be a little bit of buyer and seller surplus (represented by a market maker facilitating a strike price between the bid/ask spread). Second, risk matters—could be that gain the seller missed out on was just not the right deployment of their capital for their risk profile, so they actually aren’t “missing out” on it at all. Third, you’re not observing opportunity costs in strike prices, so could be that gain the seller missed out on was a lower conviction bet they wanted to take off so they could get into a higher conviction bet, so they aren’t actually “missing out” on it at all. Fourth, add in a subjective value function and suddenly on a utility basis, it is extremely easy to see the potential for actors to view trading as offering gains (though as mentioned, you don’t even need this to begin chipping away at the zero sum notion).
Finance is easy to side-eye, but read Matt Levine, it’s just like any other market where people are trying to solve each other’s problems and make some margin.
It is still tempting to assume each exact transaction is zero sum (while the macro level invisible hand is yielding positive sum) but that would be a mistake. First, there may be a little bit of buyer and seller surplus (represented by a market maker facilitating a strike price between the bid/ask spread). Second, risk matters—could be that gain the seller missed out on was just not the right deployment of their capital for their risk profile, so they actually aren’t “missing out” on it at all. Third, you’re not observing opportunity costs in strike prices, so could be that gain the seller missed out on was a lower conviction bet they wanted to take off so they could get into a higher conviction bet, so they aren’t actually “missing out” on it at all. Fourth, add in a subjective value function and suddenly on a utility basis, it is extremely easy to see the potential for actors to view trading as offering gains (though as mentioned, you don’t even need this to begin chipping away at the zero sum notion).
Finance is easy to side-eye, but read Matt Levine, it’s just like any other market where people are trying to solve each other’s problems and make some margin.