FUTURES 321 



buys from broker "B" 25,000 bushels of corn for May delivery, he has 

 really bought five 5,000-bushel lots, and both parties would so enter 

 the transaction on their books. Delivery must be made in lots of 

 5,000 bushels and settlement can be efifected for 5,000 bushels or 

 any number of 5,000 bushel lots up to the total amount of the 

 contract. The same holds true in all transactions. When a trade 

 of 100,000 bushels is reported, it means twenty lots of 5,000 bushels 

 each. A broker may receive orders from five clients at the same 

 time to buy May corn. Clients "A" and "B" and "C" order 

 10,000 bushels each; client "D" 15,000 bushels and client "E" 5,000 

 bushels, aggregating 50,000 bushels. The broker steps into the corn 

 pit and bids for 50,000 bushels, buying it all of one party. He then 

 divides the purchase among his clients; "A," "B" and "C" each get 

 two 5,000-bushel lots. "D" gets three 5,000-bushel lots and "E" one 

 5,000-bushel lot. The party of whom the broker bought has really 

 sold him ten s,ooo-bushel lots and so enters it on his books ; although 

 at the time the trade was made, it was spoken of as a 50,000-bushel 

 trade. This is a feature of the trading which must be clearly under- 

 stood by the student before he can grasp the system of settlements. 



All contracts being uniform as to quantity, they are substituted one 

 for the other, and members of the Board acting as commission mer- 

 chants do not try to preserve the identity of the contracts made for 

 any particular clients. In place of doing so, and for the privilege of 

 substituting similar contracts, they guarantee to their clients the ful- 

 fillment of the contracts, a course not usually adopted by agents when 

 acting for principals. The right to substitute contracts is the consid- 

 eration for the guarantee. 



We will now take five imaginary commission merchants, Brown, 

 Jones, Smith, Day and Lee. They all receive and execute orders for 

 the purchase and sale of grain for future delivery on the Board of 

 Trade. Their clients are millers, exporters, eastern dealers, buyers of 

 grain at western points, speculators, and investors. The clients send 

 orders from day to day as their business requirements or desire to 

 speculate may dictate. Some of these orders are to buy, some to sell. 

 We shall assume that they are all in corn for May delivery and that 

 the contracts are entered into in January. Brown receives an order 

 to buy 5,000 bushels of May corn. Stepping into the corn market or 

 pit, he buys the quantity ordered of Jones, one of the other commis- 

 sion merchants. If either Brown or Jones elects, there is but one way 

 to settle this contract ; that is, by actual delivery by Jones to Brown 

 some time in the month of May. Or, if Brown does not sell 5,000 



