150 WHEAT PRODUCTION IN NEW ZEALAND 
future delivery would be possible without the speculative 
market. This could happen to some extent, but without 
the speculative market there would be no continuous 
market in which a definite price for future deliveries is 
always quoted. 
But the use of the continuous market is not, however, 
the only safeguard which the trader or merchant has 
against risk. By extending the system he has devised 
a second method, which consists of almost complete 
insurance against loss by ‘‘hedging’’ transactions. The 
practice consists in carrying two lines of compensating 
transactions, on the part of the merchant or manufac- 
turer, one in the speculative market and one outside. 
These contracts are always of opposite nature, and thus 
act as a ‘‘hedge’’ against all price fluctuations. Thus 
for example, the dealer who buys wheat in the interior 
may sell immediately an equivalent amount for future 
delivery on some exchange, not meaning to deliver the 
wheat he has just sold. When ‘‘he does sell his actual 
holdings he may fulfil his exchange contract by covering 
in open market. The object of the exchange contract is, 
of course, to avoid risk. If the price falls, the dealer’s 
wheat is worth less to him, but this loss will be made 
good by the profit on his exchange transactions where 
he sold short on a falling market. In the same way he 
sacrifices all chances of great profit.’’* 
This method of insurance by ‘‘hedging’’ is common in 
the United States of America, among most large millers, 
dealers, and elevator companies. So common has the 
practice become that one who does not ‘‘hedge’’ is looked 
upon as most reckless, and, paradoxical as it may seem, 
the man who strictly avoids the speculative market is 
the greatest speculator of all. 
*See also ‘‘Report of the British Association,’’ 1900. 
**Report of Committee on Future Dealings on Raw Produce 
Exchanges.’’ Page 426. 
