E. The scalper s against him beculator's as oks and stays of a commis resemble the itude toward regarded as which mere al judgment, e gambling -A curious is that by to hold for the account punt." The fact pure Ons as con elling when 1 as charrators, who ch phrases. Some will, y reducing ry through cording to There is of rs and the tive basis. Dor of the fractional it. While lator may If reputed ly known de of the has been short a 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 from time to time try to do something in g lation in grain originating in New York is doubtless varying quantity, at times large but ordinarily Hedging orders come from all parts of the United Sta ada. Sometimes a grain trade man not resident in figure in large speculative operations. Years ago—th ently not so much recently-many prominent Chicag seem to have taken a hand, including big department Not all the large spéculative operators are successf who can carry several million bushels of open trades at be considered such so long as they can keep it up. Few known outside the grain trade. Some have other la which may serve to support losses in grain speculation. known to have built up large fortunes by speculating. usually had years of experience in the grain trade befo whether starting as errand boy, country dealer, or settl SPECULATION BY OUTSIDERS.-It is inevitable that the a convenient facilities for speculation afforded to the ge will be used to a great extent by persons speculatively i have no knowledge of the grain trade, just as stock exch ties are speculatively used by outsiders. The desire to u independent business venture is general, and for most o must earn their living in some other line, either on sal small business or professional way, the opportunity is only in the form of speculation in real estate, securiti modity futures. The fact that the last, especially, pr poses some technical knowledge of an important branch will not deter the outsider. He will not be dissuaded bed gambling element in the enterprise, even though he sciously a gambler. Such "playing the market" by often mere gambling, in the sense that knowledge or sk sight have no part. This is rather more true of speculati than in real estate or stocks, since every man is in position judgment of his own as to real estate values in his own as to listed securities whose income and balance-sheet are accessible in print. In other words, speculation by is perhaps even less legitimate in commodity futures th other great speculative lines. Outside speculators may frequent the customers' roo brokers, or they may give their orders by mail or teleph the order clerk's window when they happen to go to th office, perhaps to discuss the market. Many traders spen the day in the customers' room. These are usually retire men, sometimes former grain-trade men. Some of then active in some lines of business, but under conditions such can spare a few hours a day or an entire day now and ther themselves with the chance of speculative gains. Much trading, externally resembling the pit scalpers' transaction by such people. An important factor in trading by outsiders is the in individual brokers and employees of commission houses u friends and others who may wish to do some speculative ess an extremel n Chicago will t store owners ew of these are on. A few are efore doing s - inclined who undertake an alary or in a on to form a - statements Dy outsiders than in the oms of the phone or at he broker's nd most of ed business m are still that they n to amuse short-term ns, is done fluence of upon their e business. 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 I 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. 66 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 Local commission houses with business mainly in futures, principally Independent pit scalpers, i. e., those clearing their own trades_ "One having a short private wire. 14 17 13 65 9 Provision dealers and provision traders.. This list does not include certain members of the cl as of the end of 1917 who cleared only provision futur years prior to that date. The provision dealers and tra are those who did also some trading in grain. This lis of the grouping of clearing members for statistical ployed in Chapter IV. It will be noted that the cash grain element in the cl at Chicago is small. The number of independent pit s traordinarily large. The importance of this element ap the number of local commission houses that are suppo trade, i. e., by the trade of scalpers. The wire houses a monopoly of futures business done at full commiss least for such as originates outside Chicago. WIRE HOUSES.-The most important element in Ch trading is constituted by the customers of the private Private wire houses are more important here than of grain or produce exchange. These houses usually have ents, if not branch offices, on other important exchanges often the branches and correspondents to whom the extends are, as regards futures, merely sources of Chica The main office of the wire system is often in the Eas in New York City, and the wires may be chiefly used exchange business." The wire houses themselves are not a distinct factor in the typical wire house being merely a broker or agent of All kinds and sources of business are served by the w Perhaps their existence increases the amount of future cause of the quicker and better service they offer as com the old-line commission houses. Some private wire sys ever, have been built up by merchandisers of grain and are used only incidentally in the service of customers, cash grain or futures. This refers to certain large elevat CASH GRAIN HANDLERS.-The term commission merch generally used at Chicago to designate brokers in future be available to indicate those whose primary business is cash grain on consignment. These are known in Chic ceivers. The receivers are not a very important factor in market, either on their own account or on account of their though they incidentally handle future orders for cash Some of the wire houses are also large receivers. 66 The receiver of cash grain, or consignment dealer, at not a merchandiser of the article he handles. While th a "receiver" on consignment may also trade in cash grai with the exception of to-arrive purchases, where the ow the grain by the receiver is nomínal rather than actual, t of merchandising by cash handlers without elevator c probably negligible. The terminal elevator companies are the principal mer of grain at Chicago. Merchandisers with terminal elevato 12 Two having short private wires. 16: e clearing hous tures for several traders counted list is the basis l purposes em clearing house scalpers is er appears also in ported by floor es have almost ission rates, at Chicago futur Ee wire houses on any other we correspond es. But more e wire system cago business ast, especially sed for stock In the market. of customers. wire systems trading, be mpared with ystems, hownd the wires - whether in tor concerns. chant" is so es as not to is to handle cago as rethe futures r customers, customers. Chicago is heoretically in, in fact. nership of the amount capacity is chandisers or capacity what 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 mem bers 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. , 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 |