Trading on exchanges can be divided into spot trading and margin trading. On spot platforms, there is initially only one participant: the buyer, acting as an investor or a speculator. Under certain circumstances, some of these participants move into a seller state and two participants appear, which is necessary for the game. Next, I mean the game on margin resources, where game theory is manifested more clearly than in spot trading.
General information from game theory.
Game theory studies optimal strategies in games. It’s no coincidence that trading on an exchange is called a game—indeed, a game of the class of antagonistic games, in which a win is obtained at the expense of the losing side.
In a classical game there are always rules for that game, and players must strictly follow these rules.
Unlike a classical game, in the exchange game there are no strict rules; everything is allowed that is specifically not prohibited.
At the same time, exchange trading can absolutely be classified as a type of gambling game. A game is considered gambling if it contains at least one random element. In exchange games, there are many random and probabilistic elements—both expected and completely unexpected.
When trading on an exchange, the price chart of an asset occasionally moves from one assumed equilibrium state to another. In each of these states, the game fund is approximately constant (constant) and changes during transitions, becoming temporarily constant as well, but smaller or larger than in the previous state.
Within the state, a zero-sum game is played, with two assumed players involved—buyers and sellers (longs and shorts), (bulls and bears). Without changing the total amount of the game fund in this state, money moves from one set of players to the other, and vice versa.
Transition to the next state occurs after another inflow or outflow of liquidity, and the game fund stabilizes again at new values until the next impulse.
For players from the previous equilibrium states, the game becomes a game with a non-zero sum.
Game theory is known to show that during a game most players will follow their authoritative leader and begin to behave as he does and “like everyone else”. “Self-fulfilling prophecies” will also occur. Speculative attacks on both the exchange itself and in the information space are very likely. Among the players, the strategy “to play big” will start to dominate.
The so-called law of queues will inevitably manifest—when from time to time the site is “full” and then “empty,” for predictable and unpredictable reasons.
Obviously, everything listed above can periodically shift so-called equilibrium systems from one zone to another as long as exchange trading is active. Predicting the duration of equilibrium periods is a separate question, and it is not considered here.
The main thing you need to know from game theory.
For a margin exchange game in the long run, you need to remember that you are taking part in a gambling game where there are no exact answers—only probabilities of different outcomes. You must not make high bets that could cause losses greater than what is acceptable.
To ensure that over the long run the number of wins is greater than the number of losses, you need not only to be able to play well, but also not to be greedy when closing profitable positions. That is the optimal strategy according to game theory.
Very important. Like any other game, you should be able to and strive to enjoy the exchange game; otherwise, such games can end in personal distress.
Author’s article
Crypto_Gen21, Binance ID: 35238374