Zero-sum
A payoff structure in which gains and losses across the defined participants sum to zero, using the same valuation currency and time period, before costs. It describes a specified set of payoffs, not the usefulness of every currency exchange.
Example. In a hypothetical bilateral cash-settled FX contract, one counterparty receives USD 100 and the other pays USD 100. The net payoff is zero. If each also pays USD 3 to an outside service provider, their combined result is USD −6; the provider is outside this two-party calculation.
Define the scope
Identify the parties, payoff, valuation currency and costs being counted. In a cash-settled derivative, the contractual payment is an equal receipt and payment. A spot currency exchange also transfers assets; it should not be described as a simple realised trading loss for one party at the moment of exchange.
Common mistake
Zero-sum cashflows do not imply that hedging has no economic value. A business may willingly pay for a hedge that reduces uncertainty. Likewise, adding intermediaries to the group changes how fees are counted.
Apply it
Use the concept to understand counterparties and transaction costs, not to claim that any specific strategy must win or lose. Strategy assessment still requires net expectancy and a representative sample.
FAQ
Does zero-sum mean the exchange has no economic purpose?
No. Transfers can reduce uncertainty or support activity despite offsetting financial payoffs.
Do fees automatically make the whole world negative-sum?
That does not follow from the example. Define the participants and whether fee recipients are inside the calculation.
