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the minimum proportion occurring in 1915 and the maximum proportion in 1916-17. Of course, in all these cases the proportion that reaches contract grade can be raised (by mixing, etc.) after arrival at the terminal market.

It is doubtless with reference to this variation in the proportion of the grades in successive crops that the suggestion has been made that future contracts be made "for the ordinary commercial grade of each grain,”1 such grade to be determined with reference to the quality of the crop. Doubtless, this result has in the past to some degree been obtained by laxer grading during years of poor quality crops. HOW PREMIUMS AND DISCOUNTS ARE FIXED.-Where a number of evidently different grades or qualities are included as good for delivery, it is common, as has been noted, to grant premiums for delivery of the better grade, and usual to exact discounts in the case of delivery of lower grades, or less than contract grade. The discounts will normally be made greater than the usual differences in prices that will prevail for the grades compared as they are sold in the cash market. The purpose in making the fixed difference higher than the actual difference is to bring it about that the purchaser of the future will receive the contract grade under all normal conditions. The buyer is thus favored, as is appropriate in view of the wider choice allowed the seller in the selection of a grade for delivery. It does not appear, however, that present premiums and discounts on oats and corn at Chicago reflect this policy. But it may be that the various grades of oats and corn are so nearly interchangeable in utilization that the commercial differences in price remain about constant. As between spring wheat and winter wheat, and further as between soft and hard winter wheat, there is clearly no such adjustability of demand. Perhaps this is the reason for the absence of premiums and for comparatively large discounts on wheat deliveries at Chicago.

BULK BINNING AND UNIFORMITY OF GRADES.-Bulk storage involves some mixing of subgrades of slightly different quality or characteristics, thus tending, apart from any intention, to bring about a higher degree of uniformity in grain that has passed through elevators. Only the same grades are binned together (except by mistake or by intentional mixing), but within the grade the uniformity is increased. Bulk binning is in effect a process of averaging and, of course, the broader the basis of an average the more constant its value. The system of handling grain in sacks, instead of by means of elevators, is not well adapted to grading. Mixing also occurs in private elevators intentionally. If a car lot of grain that inspects No. 2 is at the top of the grade it is possible, by mixing a compara

See the resolution of the Western Grain Dealers Association, Grand Rapids meeting, 1914.

tively small proportion of such No. 2 with some No. 3 grain, to raise the entire quantity up to No. 2 grade. A comparatively low grading for a particular lot may be due to deficiency in some one particular that can be remedied by mixture with other grain of practically the same grade. An elevator man says mixing five cars of No. 3 wheat can sometimes be made to give five cars of No. 2, if, for example, the deficient grading is due in one case to an excessive admixture of rye, in another to too much moisture, and in another to light weight. For purposes of delivery out of public storage, especially on future contracts, differences within the grade are of no benefit to the owner of the grain. The slightest difference, however, that crosses the line of definition between contract and other grades is of great importance.

CHAPTER V.

ACCOUNTS AND SETTLEMENTS.

Section 1.-Dealing for the customer.

THE CUSTOMER'S ORDER.-Giving an order to buy or sell, as the case may be, either by mail or in person at the order desk, is the first stage in dealing in futures. Slips are at hand for this purpose in the customers' room. Of course, the order may be received by telegraph over public or private wires. The order desk immediately transmits the necessary direction by telephone to the pit trader on the floor of the exchange, provided the exchange is in session. If the order is received by mail or otherwise after the hours of regular trading. it is listed by the pit trader on his order card or slip before he leaves the office in the morning.

THE RECORD FOR MARGINS.-If the order involves the opening of an account, a margin must usually be immediately deposited to cover the risk to the broker and to protect the customer's account. With reference to keeping intact the margin, or a sufficient percentage of it to serve the purpose of protection, the margin clerk compares the price at which open contracts are held with the market price each day and notes whether it is necessary to call the customer for further margin. The record used by the margin clerk may be a cardboard slip or a ledger. In either case, this record is in its nature ephemeral and subject to change and erasure from day to-day or even from hour to hour, according to the fluctuations of the market. In one case at least the margin book consists of silica slates from which it is easy to erase entries that no longer apply. In general, however, no special provision is made for repeated erasure other than the use of paper or cardboard that will stand it. The record is, of course, kept in pencil, and the cards or sheets are naturally mussy and soiled.

The margin clerk has instructions with regard to each customer as to whether it is necessary to be strict in calling for further margin or whether some leeway can be permitted. In some cases credit is allowed. That fact and the amount of the permissible credit will be noted on the memorandum or margin card.

ORDERS 66 AT THE MARKET."-If an order is put in to buy or sell “at the market "that is, at the price prevailing when the order reaches the pit-the order is executed as promptly as possible by the pit

trader of the commission house through which the order goes, and the result is reported from the floor to the house and a report made by the house to the customer immediately. This report is made by a confirmation slip, handed or mailed to the local customer, or telegraphed to the out-of-town customer in the case of private-wire houses, and sometimes telegraphed over public wires.

It is evidently of importance to the customer to know just when his order, if made at the market, was received and when executed. If the house or the broker were allowed to hold back an order, it might fail of execution because of a change in the market, or the broker might buy or sell ahead of the customer, thus "getting an edge" off the price for himself. The commission house, of course, could not safely tolerate this sort of thing. It takes precautions to see that the pit trader attends to the interests of the customer. Orders are time stamped as received and confirmations are similarly time stamped. Every order sent to the pit trader is therefore timed, and the report from him must be back in a brief interval or else he must explain. It is said that sometimes a pit trader scalping for himself will be able to get ahead of a very large order, but the risk is great, so that such instances are no more than the exceptional acts of sharp practice that occur in any kind of business. Some houses, partly because of this possibility, require their pit traders to clear all their personal trades through the house.1

In some wire houses special recording devices are used which show to the second the time when an order is received over the wire and its terms. The Board of Trade keeps an official record of prices made in the pit down to an interval of 10 seconds, as already explained. The record is accessible to the public for the verification of execution. The secretary of the Board will investigate any complaint as to the execution of an order, if the house concerned does not give the customer satisfaction.

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ORDERS WITH A LIMIT.”-Orders to buy or sell by the customer may be put in "with a limit " as regards the price; that is, at a price set. Such a limit may take the form "sell at not less than 80," or "buy at not more than 90," or simply, "buy (or sell) at 80," as the case may be. Directions to "buy at 80" mean to buy at not more than 80. In a market that is undergoing rapid fluctuations, it is sometimes difficult for the broker to act soon enough to buy or sell at a definite price. In that case the customer gets the benefit of any favorable

1 Two important houses make this a matter covered by a written contract of employment. By one form the pit trader agrees "not to put down any of my personal trades to any house other than without first obtaining the written permission of By the other the pit trader agrees not to trade except for the corporation employing him and its subsidiaries, and then by a supplementary contract is permitted to trade for his own account provided all trades are made through the employer as commission merchant.

difference between the price at which his order is put in and the price actually obtained.

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"OPEN ORDERS.—An order (of course, with a limit) that stands upon the books and has not been filled is known as an open order. Unless instructions are given to hold an order open, i. e., unless it reads "G. T. C.," it is considered good for the day only. "G. T. C.” means "good till canceled." Open orders may, of course, be accompanied by instructions to hold them open for a specified period, a week, or a month, or until such and such a day. Open orders are sometimes far away from the market; perhaps to buy at a price 30 cents below the market or to sell at a price 30 cents above. Such open orders that are far away from the market have usually been given in connection with open trades on the customer's account, but this is not necessarily so. Of course, they are usually G. T. C. orders. No matter how long such an order has been open, the pit trader is supposed to have a note of it on his order card when he goes to the pit in the morning. Open orders that have been kept on the books for a while are referred to as "resting orders."

SPREADING ORDERS.-A spreading order is a combined order to buy on one market (or in one option) and sell on another, the intention being to profit by a change in the difference between the two prices. Such a customer is not interested in the prices as such, but in the difference between the markets. The order will take the form of instructions to buy and sell "at 7 cents difference." The acceptance by the customer of the execution of one of such a pair of orders is conditional upon the successful execution of the other at the prescribed difference. Sometimes the broker is given some leeway. In shifting hedges and in spreading between options an order may be given to sell and buy "at the prevailing difference." If the broker executes one of a pair of orders at a prescribed difference and can not get the other, he has to take the first trade to his own account, perhaps charging it to "errors."

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PROPORTION OF MARKET ORDERS.-Chicago orders from customers outside Chicago are more often put in with a limit than at the market. The customer wants to know what he is going to pay and does not want the price to depend upon some market change that he knows nothing about. In other words, he is more often willing to be in doubt as to whether the order will be filled than uncertain as to the price at which the quantity will be put down to his account. Hedging orders from the country usually read "above 90 cents," or other specified even price, the latter being determined by the price at which the cash-grain transaction that is being hedged was made. Orders originating at the terminal market, on the other hand, are most likely to be put in at the market price. Minneapolis trading from the country, moreover, appears to differ from Chicago trading

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