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large amount lays him open to attack. Other large operators may "go gunning" for him, that is, they will attempt to shake him out of his holdings when the market goes against him somewhat and weakens his credit.

SHORTS AND LONGS.-The distinction between shorts and longs is the same in general for grain as for stock speculation. There is one interesting difference, however. A future can not be bought for investment. In stocks it is not difficult to differentiate in a general way between purchases for investment and for speculation, although it may be difficult to draw a precise line between them. Among sellers of stocks, of course, the short seller is always a speculator. In grain the trader in futures may be a producer, merchandiser, or consumer of grain using the market for hedging, and if not, he is a speculator in the broad sense that includes spreaders and pit scalpers. The seller of futures who is not hedging is always a speculator.

In grain, as in stocks, speculative buying or speculating for the rise seems more natural or a simpler matter than speculative or short selling, hence the latter is probably done to a greater extent by professional speculators than by other traders. Until delivery is made the buyer has no other responsibility than the financing of his margin deposits. But delivery is at the seller's option and many speculative buyers prefer to keep out of the delivery month by closing their trades in the month previous.

In general, delivery is an undesired alternative for the speculator, whether he is on the long or the short side. But it is especially the outside speculator, with no grain trade interest or experience, who may be inconvenienced by having to pay for what he has bought and dispose of it or to obtain and deliver what he has sold. Financing deliveries may be a considerable burden to a small commission house. While the short side is more likely to be taken by a professional speculator than by other future traders, it should be true that such a speculator will as readily take one side as the other according to his judgment of the market. In fact, however, some speculators are habitually either bulls or bears, the usual alternative to operating on their favorite side being to stay out of the market. The most conspicuous or notorious instances of large speculative operations have been on the bull side, due to the fact that they have resulted in corners. A bull speculator may be such in the hope of contriving a corner, but the feasibility of this is no longer what it once was. Section 8. Classes that speculate.

THE APPETITE FOR SPECULATION.-Given a propensity for speculation, the impulses that cause the individual to speculate operate when stimulating or favorable circumstances develop. The propensity to speculate is promoted by specialized facilities for its exercise that are open to all. The desire for a form of activity calling for the exercise of commercial judgment but making no extensive demands upon the time and energy of the trader may be a strong motive with some individuals, and is doubtless frequently the deciding factor in causing speculative ventures.

THE PROFESSIONAL OPERATORS.-Most professional speculation in grain is centered at Chicago and comes mainly from men in the grain trade or with grain-trade connections. Some of the largest

operators in grain, however, are also speculators in stocks. The rule works both ways, naturally, and some large New York stock operators from time to time try to do something in grain. Speculation in grain originating in New York is doubtless an extremely varying quantity, at times large but ordinarily insignificant. Hedging orders come from all parts of the United States and Canada. Sometimes a grain trade man not resident in Chicago will figure in large speculative operations. Years ago though apparently not so much recently-many prominent Chicago merchants seem to have taken a hand, including big department store owners. Not all the large spéculative operators are successful, but those who can carry several million bushels of open trades at a time may be considered such so long as they can keep it up. Few of these are known outside the grain trade. Some have other large interests which may serve to support losses in grain speculation. A few are known to have built up large fortunes by speculating. They have usually had years of experience in the grain trade before doing so, whether starting as errand boy, country dealer, or settlement clerk. SPECULATION BY OUTSIDERS.-It is inevitable that the accessible and convenient facilities for speculation afforded to the general public will be used to a great extent by persons speculatively inclined who have no knowledge of the grain trade, just as stock exchange facilities are speculatively used by outsiders. The desire to undertake an independent business venture is general, and for most of those who must earn their living in some other line, either on salary or in a small business or professional way, the opportunity is often open only in the form of speculation in real estate, securities, or commodity futures. The fact that the last, especially, properly supposes some technical knowledge of an important branch of business will not deter the outsider. He will not be dissuaded because of the gambling element in the enterprise, even though he is not consciously a gambler. Such "playing the market" by outsiders is often mere gambling, in the sense that knowledge or skill or foresight have no part. This is rather more true of speculation in grain than in real estate or stocks, since every man is in position to form a judgment of his own as to real estate values in his own town and as to listed securities whose income and balance-sheet statements are accessible in print. In other words, speculation by outsiders is perhaps even less legitimate in commodity futures than in the other great speculative lines.

Outside speculators may frequent the customers' rooms of the brokers, or they may give their orders by mail or telephone or at the order clerk's window when they happen to go to the broker's office, perhaps to discuss the market. Many traders spend most of the day in the customers' room. These are usually retired business men, sometimes former grain-trade men. Some of them are still active in some lines of business, but under conditions such that they can spare a few hours a day or an entire day now and then to amuse themselves with the chance of speculative gains. Much short-term trading, externally resembling the pit scalpers' transactions, is done by such people.

An important factor in trading by outsiders is the influence of individual brokers and employees of commission houses upon their friends and others who may wish to do some speculative business.

The employee of a commission house who comes in contact with customers usually has his speculative clientele who get advice from him and whose interest in the market is kept alive by frequent communications and suggestions. Sometimes outsiders may have their accounts handled by a so-called "discretionary broker," who receives a percentage of gains, making decisions for some diffident speculator, but few commisson houses sanction this sort of thing. The employee with a considerable clientele may be able to carry it with him in passing to the service of another house. Such a clientele is necessarily highly fluctuating in extent and personnel, depending on general interest in the market and also on whether the customer's funds available for speculation have been exhausted for the time being. The fluctuating character of the small outside trade is one of the interesting facts that stands out upon casual examination of the ledger accounts of commission houses.

The manager of a wire house branch office in the Northwest stated that about 10 per cent of his trade in futures was of the miscellaneous small speculator class without any proprietary or professional interest in grain. These were small storekeepers, professional men, traveling men, etc. Not much weight need be attached to the estimate of quantity. The most significant point is the statement that this class made the shortest trades (as to time open) and put up the narrowest margins, practices which the manager considered characteristic of speculative business.

"The country always gets in at the top" is a characterization of small miscellaneous speculative trading which would be indorsed by most outspoken grain exchange men.

Section 9. Trading elements in the grain futures markets.

CLASSIFICATION OF MEMBERS.-The business of firms and corporations having membership privileges on the Chicago Board of Trade is shown in the membership lists of the board printed in its annual reports. But the descriptive terms used in this list are worth little. There is a preference for designations that sound well. Nobody calls himself a pit scalper or pit trader. Though he may have no commission business at all, he calls himself a "commission merchant or uses some similar term. Sometimes he calls himself a "broker," which, if it be taken to mean pit broker, is usually only half the truth.

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The clearing-house members constitute the class that may be taken to comprehend those having a considerable business in futures, because they thereby save paying commissions as customers of others. A classification of these clearing members, based upon descriptive data furnished by the members of the clearing house that were active in 1917, is shown in the following statement:

Private-wire houses, excluding terminal elevators and including wire
houses with receiving departments, principally grain---
Private-wire houses, excluding terminal elevators and including wire
houses with receiving departments, principally stocks_

14

9

Local commission houses with business mainly in futures, general futures 11

Local commission houses with business mainly in futures, principally floor trade---

Independent pit scalpers, i. e., those clearing their own trades_-_

"One having a short private wire.

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12

Terminal elevators, including those with private wires_
Cash handlers without terminal elevators
Provision dealers and provision traders__.

9

25

12

164

This list does not include certain members of the clearing house as of the end of 1917 who cleared only provision futures for several years prior to that date. The provision dealers and traders counted are those who did also some trading in grain. This list is the basis of the grouping of clearing members for statistical purposes employed in Chapter IV.

It will be noted that the cash grain element in the clearing house at Chicago is small. The number of independent pit scalpers is extraordinarily large. The importance of this element appears also in the number of local commission houses that are supported by floor trade, i. e., by the trade of scalpers. The wire houses have almost a monopoly of futures business done at full commission rates, at least for such as originates outside Chicago.

WIRE HOUSES.-The most important element in Chicago future trading is constituted by the customers of the private wire houses. Private wire houses are more important here than on any other grain or produce exchange. These houses usually have correspondents, if not branch offices, on other important exchanges. But more often the branches and correspondents to whom the wire system extends are, as regards futures, merely sources of Chicago business. The main office of the wire system is often in the East, especially in New York City, and the wires may be chiefly used for stockexchange business.

The wire houses themselves are not a distinct factor in the market, the typical wire house being merely a broker or agent of customers. All kinds and sources of business are served by the wire systems. Perhaps their existence increases the amount of future trading, because of the quicker and better service they offer as compared with the old-line commission houses. Some private wire systems, however, have been built up by merchandisers of grain and the wires are used only incidentally in the service of customers, whether in cash grain or futures. This refers to certain large elevator concerns. CASH GRAIN HANDLERS.-The term "commission merchant" is so generally used at Chicago to designate brokers in futures as not to be available to indicate those whose primary business is to handle cash grain on consignment. These are known in Chicago as receivers. The receivers are not a very important factor in the futures market, either on their own account or on account of their customers, though they incidentally handle future orders for cash customers. Some of the wire houses are also large receivers.

The receiver of cash grain, or consignment dealer, at Chicago is not a merchandiser of the article he handles. While theoretically a "receiver" on consignment may also trade in cash grain, in fact, with the exception of to-arrive purchases, where the ownership of the grain by the receiver is nomínal rather than actual, the amount of merchandising by cash handlers without elevator capacity is probably negligible.

The terminal elevator companies are the principal merchandisers of grain at Chicago. Merchandisers with terminal elevator capacity

12 Two having short private wires.

are naturally important factors in the futures market. They have millions of bushels of grain to hedge. Their hedges are also somewhat special in character. Their ability to deliver on futures, as well as the volume of their trading, gives them a peculiarly powerful position in relation to futures as well as to the cash grain business, especially since there is a considerable degree of concentration in the control of terminal elevator capacity.

LOCAL FUTURES BUSINESS.-There is still in Chicago a considerable number of local "commission merchants" with no cash business, or practically none. They receive some orders in futures from outside Chicago over the public wires, but most of their trade is local. The ratio of the member trades executed by such a house to its total business is large, and especially the trade cleared at $1.25 per 5,000 bushels 18 often constitutes almost their entire business. Some members of the clearing house are in effect associations of pit scalpers for the joint keeping of accounts and the joint clearing of trades. A few local commission houses, however, have a fairly extensive business, often in large part a survival of the period before the private-wire systems became of dominant importance in futures. There are some pit scalpers who keep their own books and clear their own trades, usually employing a bookkeeper, perhaps on part time, and sometimes attending to all accounting details themselves. A few trades from customers are likely to be taken incidentally by such pit scalpers, although in some cases there is an express avoidance of such business. A pit trader who does not clear can not, under the rules of the board, transact business for nonmembers.

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Probably the major part of pit-scalping trades are "given up and cleared by others. Most pit scalpers are employed by wire and commission houses as pit brokers (formerly on salary but now on a brokerage basis), trading for themselves on the side." Section 10. A concrete view of speculation.

The theoretical view of the functions and workings of speculation is presented in the earlier sections of this chapter with a hint that the theory is subject to qualification when an attempt is made to apply it concretely. Although the necessary qualifications can be adequately discussed only in the light of the completed analysis and presentation of available statistical and other data, some suggestions of points to be considered are in place here.

TIME INTERVENING BETWEEN PURCHASES AND SALES.-The prevailing economic theory of speculation implies a considerable separation in time between purchases and sales. There must be time for a revision of the market's valuation of the commodity; that is, time for the manifestation of changes in the factors of supply and demand and for the justification of a far-sighted view of future events. While such time may be a matter of days, or even hours, instead of months, it is at least proper to assume that the true speculator, who performs the function that economic theory attributes to him, will not be influenced by momentary fluctuations and is on the whole concerned chiefly with long-term commitments.

But the fact is that most of the future trading that is not in any way connected with hedging is for the quick turn. In a great pro

18 See Vol. V of this report, p. 86.

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