smallness of the available margin, afford evidence of gambling propensity and intent. Plunging is not business, nor is it well-considered speculation. Such a speculator trusts to luck and runs a great risk in the hope of a quick return. This is characteristic of the gambler. Disproportion of open trades to available resources is indicative of both noncontemplation of delivery and the absence of relation to the price-determining function of the market.

It is to be noted that the pit scalper's trades are not likely to be well protected, if protected at all, by margins. Despite his knowledge of exchange operations and conditions, his trading may, for this reason, take on the character of gambling. But, because of his presence in the pit continuously, the number of points loss that he should be able to cover by readily available financial resources need not be so large as may reasonably be exacted of the outsider who attempts to conduct similar operations.

SIMILAR RESULTS OF LEGAL AND ECONOMIC CRITERIA.—In condemning bucket shops as mere gambling establishments law and economics agree. A bucket shop in the nature of the case has no price-determining function or effect.

Through the somewhat complicated way in which the criterion of contemplated delivery is worked out, the courts have arrived at conclusions in harmony with economic needs. A strict and straightforward insistence upon expectation of delivery (which is to be distinguished from contemplated delivery) would destroy the highly developed machinery of future trading and make hedging impossible. The emphasis on intent to deliver works out well, though intent may seem obscure and the process of delivery clumsy. Delivery, however, though it must be contemplated, is not required on the individual trade. The criterion of intent is rather less subjective and rather more definite than economic competence and knowledge. The economic needs of the situation are well met.

Section 6.-Advice to customers and knowledge of gambling intent in relation to the rights of the broker.

IMPORTANCE OF BROKER'S ADVICE.-In the case of James v. Clement, as reviewed above, it was noted that the advice given by the broker to his customer was an important factor in the final decision. Though the customer is gambling, this fact may not affect the transaction so far as the broker is concerned, unless a statute places upon him the burden of proving that he was not cognizant of the customer's intent. But, in the absence of such a statute, the character of the whole transaction, and especially any recourse the broker may have, is likely to be judged according to how he expressed himself regarding trading in process or recommended by him.

The suggestion by the broker in a telegram to the customer that conditions were making "the market a good scalp" was damaging to the former in the case of James v. Clement. If the broker had been content to say that the market was a "good buy" (or sell, as the case might be), that would not have implied the quick turn that is indicative of gambling intent. Persistent advice to customers tending to foster scalping intentions have, or should have, the same unfavorable effect on the broker's status whether the term scalping is actually used or not. The "in and out" method of operations is a gambling method, at least when not in the hands of a professional pit trader. If a speculator believes he is fundamentally right on the market, he should stay in until his opinion is justified or changed.

The mere opinion that there will be fluctuations has no bearing on the function or outcome of future trading. On the economic side, it should be noted that the broker's interest in commissions tends to make him favor quick "in and out" changes. He should, therefore, be on his guard in the matter of encouraging gambling.

LACK OF FINANCIAL CAUTION.-One reason for the quick turn is limited financial resources on the part of the trader. Such limitation increases the element of chance in the venture by reason of the fact that its success or failure depends more upon fluctuations that are, at least to the outsider, unpredictable. A speculative venture without adequate backing is for this reason much more liable to be mere gambling. Inadequate financial backing is evidence of gambling intent. This may be due to operations too expanded in proportion to available funds or due to the possession of no funds outside the margin to protect the venture. If the margin actually put up is all the trader is prepared to risk, his venture is practically a wager that the price will go correspondingly in his favor before it goes against him to the extent of his margin. It is noteworthy that this, from the viewpoint of the customer, rather than the nonexecution of the trade on a recognized exchange, is characteristic of bucket-shop "deals."

The suggestion from a commission merchant that there is some system of trading by which the customer is secured against loss-for example through the use of privileges-either implies the quick turn and is therefore open to suspicion of intent to encourage gambling, or, worse, is even a direct fraud upon the customer thus induced to trade. It implies the quick turn because privilege contracts in grain futures protect for a single day, though weekly privileges offering less protection are obtainable. On the other hand, if a broker advises by way of caution to a customer that there is a large element of chance in trading, even by the most competent, the implication is of the opposite sort.

USE OF GAMBLING TERMS.-A suggestion to a customer from a broker that it is a good time to make a "play," or perhaps reference in general conversation to "successful plays," are not things which, if called to the attention of judge or jury, would serve to recommend to their favorable consideration the business methods of that broker. Similarly, it would not be well for a broker in the presence of his customers to refer affectionately to his commission as "the kitty," 1 unless he is willing to assume that the court and all others concerned will have not only a developed but a sympathetic sense of humor. Advice or terminology that assimilates future trading to gambling will naturally prejudice the case of a broker, who is placed in circumstances that tend at best to make him take a too sympathetic attitude toward such practices.

"STOP-LOSS" ORDERS.-The use of "stop-loss" orders—although it does not appear that any decision can be found where this practice has been brought into evidence as bearing on the issue—is indicative of gambling intent, because it means that the speculator is not sure enough of his opinion, or has not sufficient financial resources, to back it up against contrary changes or fluctuations in the course of the market. It should be noted, too, that from an economic viewpoint the practice is functionally wrong because it emphasizes rather than checks disturbances in the market. It also induces such disturbances, the reaching of stop orders being frequently the object of manipulation.

SOLICITATION OF SPECULATIVE TRADE.-The solicitation of trading in futures in a way to stimulate trade for other than hedging purposes-that is, solicitation with a design to create new speculative business, as distinguished from the attempt to obtain a larger share of existing business-is condemned as bad business ethics by a large and influential element in the Chicago Board. While the practice can not be definitely said to be legally wrong, on the basis of decided cases, the lawyer for the defendant in the case of a broker sueing a customer would probably do well to make use of the fact, if it should happen to be a fact, that the speculative trade in question would never have been made without solicitation or suggestion from the broker or his representative. The use of "tips" as a means of such solicitation properly falls under the same condemnation.

Perhaps because of the restraint upon the broker above described, it often happens or is often arranged that advice of a questionable nature designed to stimulate trading is given by some other person than the broker.

1 The Century Dictionary definition of "kitty" in the gambling sense is as follows: "A pool into which each player in a card game puts a certain amount of his winnings, to be used in meeting expenses, as for room rent, refreshments, etc."

BUCKETED ORDERS.-If a broker on occasion buckets orders, this practice will naturally prejudice his case in a suit at law between himself and customers, partly because he thereby participates in the gambling intent with which some of his customers may approach future trading. But it would be necessary, also, from this viewpoint, to show something as to the intent of the customer in the particular contracts brought to the view of the courts.

There is another principle of law bearing on this situation, however, which has sometimes impaired the claim of the broker. It is stated in the noted English case of Robinson v. Mollet, which has been cited by American courts, that the situation where a broker may, or does, become the principal at the other end of his customer's contract is vicious because it gives the broker, who is an agent, an interest opposed to that of his principal.

The practice of trading against customers has the same effect. This subject is discussed in section 8 of this chapter, where also the case of Robinson v. Mollet is quoted.

UNCALLED-FOR FINICAL LANGUAGE.-Because of the unsavory implications of metaphors in common use in speculative circles, there is some tendency among officials of grain exchanges to react in the direction of an artificial and not altogether truthful manner of referring to speculation. Some indications of this are presented in Chapter II above in the section on the censorship of news. A member of an important exchange expressed himself a few years ago to the secretary on this subject, as follows:

We do believe a great part of the trading on our board is simply for differences, viz, speculation, and therefore feel a frank admission rather than an effort to create a different impression would be the better attitude to adopt, more especially when it can be shown that the speculator is just as necessary a factor as the legitimate handler. Studied phrases like "Investment for profit and "Commitments on short side for profit" are more likely to attract adverse comment than otherwise.

To which the secretary replied:

If you were suing a customer for a balance of account, growing out of transactions for forward delivery, I am sure you would not like to have the closing paragraph [above quoted] introduced in evidence against you, as it would undoubtedly entirely defeat the success of your suit.

The commission merchant's implied definition of speculation as trading for differences is possibly not so bad, either in law or in economics, as the secretary thought. If there is intent to deliver in the sense of mental and financial preparedness to meet all normal incidents and natural consequences of the future contract, such trading for differences is not gambling.

DIFFICULTIES OF BROKERS' ATTEMPTING TO RECOVER FROM CUSTOMERS.—The difficulty a broker frequently has in recovering amounts

due from clients on account of overrun margins, etc., is due to his participation in or knowledge of the gambling intent of his customer. If the broker is free from the taint of such knowledge, even though his customer would be judged on the basis of the character of his dealings, etc., to be gambling, the former is placed in much better position. But statutes may put upon him the responsibility of determining whether it is his customer's intent to gamble before he executes the order.

In a general way the broker is protected by the legal principle that the knowledge of one party to the contract-that it is gambling and therefore illegal-is insufficient to establish its invalidity. In the absence of statute the invalidity of a transaction regular upon its face is not established by proof that one of the parties to the transaction intended it to be a gambling or wager contract, but the evidence must establish the fact that both parties so intended it. Moreover, evidence that other transactions similar to the one entered into between two parties were gambling contracts will not be sufficient to prove that parties to a contract which was regular upon its face intended to violate the law."

The presumption as to the legality of the contract is in favor of the broker. Where it is sought to set aside a contract, valid upon its face, upon the ground that it is a gambling transaction, the burden of proof is upon the party who seeks to establish the invalidity of the transaction."

The general rules governing the admissibility of evidence in civil cases apply to civil actions arising out of gaming transactions. These rules define the nature and character of the evidence which may be introduced to determine whether dealings in futures were gambling transactions and to determine whether or not a broker or commission merchant was expressly or impliedly cognizant of the illegality of the transaction, and, therefore, whether or not he could recover for his commissions or advances. For example, to show that the broker or commission merchant is cognizant of the illegality of the transaction, evidence of defendant's occupation, residence, financial ability, and that the orders to purchase were made without reference to, or in excess of, what he was able to pay for, and other material facts of like character, may be received. The economic significance of some of these points is obvious in the light of the foregoing discussion.

Testimony of the defendant in an action for such advances or commissions as to his intention and understanding that none of

1 Roundtree v. Smith (108 U. S. 269), Bibb v. Allen (149 U. S. 481, 492).

2 Roundtree v. Smith (108 U. S. 269).

3 Bibb v. Allen (149 U. S. 481), Clews v. Jamieson (182 U. S. 461), Irwin v. Williar (110 U. S. 499).

420 Cyc. 962.