About the Post:

### This article is intended for audience already familiar with the workings of the Financial Derivatives Market. The article ends with an unanswered question, thoughts and comments on which are invited. The initial part of the question -Background for Question- is to enable full understanding of the writer’s viewpoint and the question itself. The Volumes data referred to in the write-up is that Derivatives Segment data which is available on Securities and Exchange Board of India [SEBI] ‘s website and data available on websites & documents of National Stock Exchange of India [NSE] & Bombay Stock Exchange[BSE].The points have been written simplistically and are brief, keeping in mind the intended audience. An elaboration of the mentioned points would be provided in subsequent posts for the benefit of all the readers.

### The Secondary Stock Market is ‘largely’ a zero-sum game and a fraction of it of-course is a positive-sum game but mostly only in theory. Practically, the highly inflated P/E and P/B ratios and huge bi-directional daily trading volumes along with brokerage costs and the added taxes make it a negative-sum game. All Equity Intra-day trades excluding delivery trades are zero-sum games of a single day duration and entire Derivative Segment trades are purely zero-sum games. For instance – The Futures Market. As with all zero-sum games, in the Futures Market it all boils down to the ‘Winners’ and the ‘Losers’ at the Futures expiry. Futures price and Underlying price of the Security converge and the total of all profits gained by ‘Gainers’ equals the total of all losses incurred by ‘Losers’.

## Total of all profits gained by ‘Gainers’ equals the total of all losses incurred by ‘Losers’

### If today’s ‘Gainers’- Institutions or Individuals are to be tomorrow’s ‘Losers’ -Institutions or Individuals and vice versa, it makes it a Zero-sum game for all; but if professional/consistent ‘Winners’ are to continue to win then ‘Losers’ have to continue to lose. More often than not losers would quit trading post a series of losses/zero-sums making it impossible for ‘Winners’ to win. No ‘Losers’ would mean no ‘Gainers’.

## No ‘Losers’ would mean no ‘Gainers’

### Rate at which market can replenish losers in equal capacity of lost numbers, money flows and volumes is quite limited. Popular reasons for market participation such as saving, portfolio re- balancing, investment or making money from markets do not justify the observed level of trading activity i.e. The Huge Volumes. *Additional Comments:* Professional trading institutions may well be aware of the zero-sum nature of the markets & would only enter when they have an edge over others. Apparently, equal no of losers are to be expected in terms of money flows, volumes et al. Laymen investors/traders tend to be -as also are advised to be-cautious in putting money into the markets thus restricting profits that can be made by professionals. Taking cognizance of the above facts, one can conclude-

## It is the very nature of the zero-sum part of the market game to practically not allow for huge volumes or continued market participation of all of its participants especially the non–gainers.

### In the context of the above mentioned market facts the question is -How is the Indian Derivatives Market practically sustaining itself with such huge volumes?