COTTON PRICES AND MARKETS 39 
thrown on the futures market has much more weight there on price 
than when left in the spot markets and carried by hedges. There 
are many, especially outside speculators, who are willing to buy con- 
tracts without having the facilities to handle spot cotton to ad- 
vantage. 
FINANCING FUTURES MARKETS 
The speculative contract for the purchase or sale of cotton for 
future delivery has no element of security to serve as the basis for 
financing itself. It is handled on a narrow margin. The warehouse 
receipt or bill of lading does not exist for such a contract. The 
transaction must be financed with the individual's own cash or funds 
secured by borrowing on collateral independent of the contract 
bought or sold. 
The amount of money needed by the borrower varies widely from 
day to day. Call money is best adapted to such business. The 
borrower pays interest on his daily balance. In normal times call 
money is the cheapest to be had. The borrower deposits bonds, 
stocks, or other evidences of property as the basis of his security. 
The seller as well as the buyer puts up margins. On the part of 
the buyer the margin put up may in some respects be looked upon 
as a partial payment for the cotton, and if he receives the cotton it 
actually turns out to be so. The seller's margin, which is like that of 
the buyer in every respect, cannot be considered any more than a 
guaranty against losses due to adverse price changes or, if it works 
out into delivery, of complete performance. The thing to be financed, 
then, is not the value of the actual bales involved, but the width of 
the probable price change. 
Since the financial standing of the outsider is not always known, 
the firm protects itself by requiring an original margin and addi- 
tional margins whenever price changes impair the original. If 
additional margins are not put up within a specified time, usually 
about one business hour after being called for, the broker may liqui- 
date the contracts. 25 
The future contract bought or sold for hedge purposes limits the 
losses which may accrue to the broker, for the losses on one side tend 
to be offset by gains on the other. 
CENTRALIZING OR LARGE SPOT MARKETS 
CHARACTER AND LOCATION 
The centralizing markets are the great reservoirs of spot cotton. 
They may be in the territory or country which grows the cotton, or 
at ports or other centers with advantages for assembling, carrying, 
and distributing cotton. The dealers and merchants in the spinners' 
markets who supply the needs of the mills draw their supplies di- 
rectly from the centralizing markets. Nearly every bale of cotton 
grown passes through them. TThen cotton is sold by the growers 
in the local market it goes immediately into the centralizing market, 
especially in so far as ownership is concerned. 
25 By-Laws and Rules of the New York Cotton Exchange, Nov., 1920. pp. 72-76 ; or 
Charter, Constitution, By-Laws, and Rules of the New Orleans Cotton Exchange. 1920, 
pp. 125-127. 
