FUTURES 323 



the business? Yet this is exactly the kind of a transaction that gives 

 rise to the criticism that "futures" are settled without delivery. 



Brown and Jones have no trouble in settling this contract. If Jones 

 sold the corn to Brown at 45 cents a bushel and subsequently bought 

 it of him at 46 cents a bushel, he has a loss in the transaction of i cent 

 a bushel, or $50.00, which he pays to Brown immediately and the con- 

 tracts involved are settled. 



We will now go one step further and note a more complicated 

 settlement, which will involve more than two brokers. 



In the month of January, Brown buys of Jones 5,000 bushels of 

 May corn; on the following day, Jones buys 5,000 bushels of May corn 

 of Smith. The purpose of these transactions is that in the month of 

 May, Smith will deliver 5,000 bushels of corn to Jones, who in turn 

 will deliver it to Brown, thus fulfilling the contracts. But, if in the 

 course of business extending over the period between January (when 

 the contracts above mentioned were made) and May (when the con- 

 tracts mature), it should so happen that Smith should buy 5,000 

 bushels of May corn from Brown, the three brokers would be in the 

 same position that Brown and Jones were in on the first transaction 

 referred to, where each had the corn bought and sold to the other. 

 To make this more clear : 



Brown has bought of Jones. 



Jones has bought of Smith. 



Smith has bought of Brown. 

 Putting it another way : 



Brown has sold to Smith. 



Smith has sold to Jones. 



Jones has sold to Biown. 



It will be noticed that, no matter how you put these transactions, 

 they begin and end with the same party, and it would be the same in 

 case any of the brokers delivered corn, for it would come back to him 

 who delivered it, after passing through the hands of the other two. 

 Assuming, for example, that Smith delivered the 5,000 bushels oi corn, 

 it would pass from one to another as follows : 



Smith delivered to Jones. 



Jones delivered to Brown. 



Brown delivered to Smith. 



So that Smith would get back the corn and the delivery would 

 have accomplished only the settlement of the contracts as among the 

 three parties. If each of the three parties received and paid for the 

 corn and in turn delivered it out and received a check for it, as they 



