198 DEEP FURROWS 



the cash purchase out in the country. Once this future 

 of fifty thousand is sold the company no longer is inter- 

 ested in market prices so far as this grain is concerned. 

 If the market goes up, their cash grain is that much 

 more valuable, offsetting the loss of an equal amount 

 on the future delivery ; if the price goes down, what is 

 lost on the cash wheat will be gained on the future. 

 So that the difference between the price paid for the 

 grain at the country elevators and the price at which 

 they sold " the hedge " is the only thing which need 

 concern the grain company and it is here they must 

 look for expenses and profits. This method of hedging 

 enables a grain company to make purchases in the 

 country on much smaller margins than was possible in 

 the early days when the marketing machinery was less 

 completely organized. It eliminates to the greatest 

 extent the necessity of speculating to cover risks. 



The speculator's opportunity comes in connection 

 with the fluctuations of the market in deliveries. He 

 merely bets that prices will go up or down, as the case 

 may be. He is not dealing in actual wheat but in mar- 

 gins. He buys to-day through his broker, who has a 

 seat on the Exchange, and deposits enough money to 

 cover a fluctuation of say ten cents per bushel. If 

 October wheat to-day is quoted at fl.45 his deposit will 

 keep his purchase in good standing until the price has 

 dropped to $1.35. He must put up a further deposit 

 then or lose the amount he has risked already, the 

 broker selling out his holding. If the speculator is on 

 the right side of the market if he has guessed that it 

 will go up and it does go up he can sell and pocket a 

 profit of so-many-cents per bushel, according to the 

 number of points the price has risen. If he has bet that 

 the market will go down the situation merely is 

 reversed. 



