Analysis of the essential differences between foreign exchange trading and baccarat

Some people compare foreign exchange trading to a coin flip game, believing that certain betting strategies can increase profit expectations, and even cite Martingale's law as a so-called must-win rule. This is actually a sign that the mathematical foundation is not solid enough. In a completely fair coin flip game, the long-term expectation of any betting strategy is zero, which can be proved by basic knowledge of infinite series. Different strategies only affect the fluctuation pattern of the capital curve, and once transaction costs are introduced, the expectation will turn negative. As long as you continue to participate, the funds will theoretically return to zero, and the failure to return to zero is only because you have not participated for enough time or times. This basic principle is not complicated, but it is enough to explain why many participants suffer losses in games like Baccarat.

To explore the difference between the two, it is first necessary to make it clear that the foreign exchange market is also a strictly negative-sum game, and in this regard there are similarities with baccarat. By contrast, the stock market, when factored in currency issuance and inflation, may be regarded as a positive-sum game in name, but its real value can also be negative-sum after adjusting for inflation. The essence of a negative-sum game is that most participants end up as losers, whose funds support a very small number of winners and the biggest beneficiaries - the rule-makers and fee collectors. However, the core problem with baccarat is that participants cannot find a weaker opponent than themselves, and all are essentially betting against the banker, and have no probability advantage in this game.foreign exchange marketIt is different. It is more like a game of pooling and redistribution of funds. The funds of market participants can be regarded as pooling together, but the distribution is not carried out in proportion to the input. First, the platforms and institutions that maintain the operation of the market will cut part of the "cake" in the form of fees. Second, arbitrageurs with information or technical advantages will take the other part. Finally, ordinary traders who contribute the vast majority of the principal can only compete for the remaining part. At this point, the quality of trading technology becomes the deciding factor. Usually, a few traders at the top share most of the profits, only a few participants can guarantee or make a small profit, and most of the remaining participants cannot avoid losing money.