CHICAGO BOARD OF TRADE.
And first, as to the speculator: He may fall within either one of two categories—the professional or the occasional. Yet even under the general caption of professional speculators, operators may be divided into two classes. One embraces men whose large wealth enables them to contrive and engineer what is popularly known as a “corner;” the other includes those who follow in their wake, believing that they can discern their intentions, and laying the flattering delusion to their souls that they can presage the course of prices. The professional speculator, as being the “larger fish,” should first claim our notice. He it is who originates and conducts “corners,” by which term is meant the forcing up of prices for any given commodity to a point far beyond their legitimate value, with a view to enriching the few at the expense of the many. Men of this stamp ordinarily associate with themselves kindred spirits, whose natural bent is the same as their own, and whose capital may prove of value in carrying out their schemes. The combination having been formed, the first objective point is the selection of some commodity or stock to “corner.” The choice having been made, the next step is, quietly and unostentatiously to buy all of it that can be purchased. Let not the unsophisticated reader for a moment suppose, however, that the syndicate thus formed proposes to buy the article in question at current rates. Far otherwise. Prices must be depressed, and there is an obvious way in which to effect this result. Every market in the world is supposed to be governed by the normal relations between supply and demand. It follows that free offerings of any commodity are likely to reduce its quotable value. What, then, are the tactics of the “operator”? Evidently to offer to sell freely. Under the influence of the precipitation of large lots, prices recede, and the speculator is shrewd enough to purchase “at the bottom of the market.” Of course he does not expose his policy by buying such enormous quantities in his own name. He has recourse to firms doing a strictly commission business, of whom he employs a multiplicity, and who always refuse to disclose the name of their principal—not from any high sense of honor, but from motives of self-interest, for the simple reason that such exposure would result in a peremptory withdrawal of business. Having secured the desired quantity of the stock or commodity selected, the clique proceeds to advance the price, not abruptly but gradually, selling a little here and buying a little there, the object being the mystification of the miscellaneous dealers. At last comes what is known as the “squeeze.” The cabal having all, or at least the great preponderance, of the article where they can, if they choose, call for its immediate delivery, refuse to entertain any offers at less than the limit fixed. The consequence is that the “shorts”—i. e., the men who have sold to the syndicate—are compelled to settle at the price to which the coalition has forced quotations. The method of operation can be best illustrated by a suppositious case. Let us suppose—simply by way of illustration—that a coterie of dealers in grain resolve to force up the price of wheat, although not to localize the illustration, we might assume the formation of a “corner” on some one of the numerous stock exchanges with which the country is blessed (?), or cursed. But let us take the Chicago Board of Trade, with whose methods the author is most familiar: Let us suppose that the article to be “cornered” is “July wheat,” and that the combination has been formed in March. Resort is had to the tactics above explained. Wheat for July delivery is first depressed, then bought, and in the end sold without regard to its inherent value, but solely with a view to what the “shorts” may be forced to pay. The profits of such “corners,” thus constructed, are sometimes enormous. Yet, as in the game of faro, the most expert dealer is sometimes put to heavy loss by the combination which is playing against the bank; so even the machinations of the strongest and shrewdest operators are brought to naught either by a combination of brighter minds, by a failure carefully to guard every weak spot, or, it may be, by very chance. The same elements are present in both games, faro and stock-jobbing. These corners are conceived in cupidity, carried on in deceit, and consummated in heartlessness; yet there are not wanting those who affirm that the commercial exchange is the very prop and bulwark of American commerce! That the exchange, in its legitimate scope, affords an easy and safe way of doing business, cannot be denied; that its practical operation is to foster speculation and encourage reckless gambling is equally indisputable.
This assertion seems, on its face, perhaps, ill-considered, yet it is abundantly justified by facts. We have, thus far, considered only the tactics of the professional “operator.” Let us, for a moment, consider the fortune (or misfortune) that awaits the occasional speculator. The latter closely resembles the man who plunges, headlong, into the Niagara rapids without even a rudimentary knowledge of the art of swimming. Like a chip, he sports upon the crest of the eddying waters of the whirlpool, until, gradually drawn nearer and nearer toward the centre, he is sucked into its very vortex, sinking to reappear no more. Yet this comparison is weak. The outside speculator who fancies that he can buy or sell on “pointers,” (i. e. private information) given him by parties well-posted, very nearly approaches an idiot in the matter of intelligence. Let us take, as a single illustration, a case which fell under the author’s personal observation. The experience of the victim (whom we will call Jones) is by no means exceptional. Mr. “Jones” was advised by a friend (?) that “old Higgenbotham” had bought up all of a certain article and that within sixty days prices were destined materially to appreciate. Naturally “Mr. Jones” found his interest, as well as his cupidity stimulated. What would his friend recommend him to do? “Buy, of course; and buy heavily,” was the answer. “But I don’t know how to buy,” objected Jones. “Why,” replied his advisor, “that’s the easiest thing in the world, Q X & Z, one of the best houses in the street, are particular friends of mine. Take my card and go down and see them. They’ll use you right.” The unfortunate “Jones” listened to the siren song. He interviewed Q X & Z, by whom he was received with distinguished consideration. The firm of brokers explained to him how he could, by depositing with them a “margin” of five per cent. on the par value of his prospective purchase, become the putative owner of twenty times the amount of his deposit. Of course he must buy for future delivery, this not being a “cash” transaction. But there was no doubt that prices would advance. Oh, certainly not.
Mr. “Jones” was naturally a little timorous, being unaccustomed to speculation. He advanced a few hundred dollars, however, by way of “margins,” and at the conclusion of the “deal,” found himself winner by a handsome sum. His experience was a revelation to him. He ventured again and again, with varying success. Finally he found himself heavily interested on the wrong side of the market. He was assured that prices must necessarily take a turn, and he could ill afford to lose the sum already risked.
To understand the nature of the risk which he had incurred, however, some explanation of the method of speculating by means of margins is necessary. To illustrate: let us suppose that a certain article—say, wheat is to-day at $1.00 per bushel, of course 10,000 bushels are nominally worth $10,000. Imagine a legitimate purchase of such a quantity at these figures. Should the price advance one cent per bushel, the 10,000 bushels would be worth $10,100; should it fall off one cent the wheat would be worth only $9,900. In the former case the buyer would win $100; in the latter he would lose a like sum. In the case of a bona-fide sale, the whole of the $10,000 is actually paid. In a speculative transaction the purchaser only advances a part of the price, usually a few cents per bushel, which is placed in the hands of his broker, who gives him a receipt therefor. The commission merchant conducts the business in his own name, assuming personal responsibility for the payment of the money. To protect himself against possible loss, which may result from violent fluctuations in the market, he insists upon a marginal deposit as above stated. Should the depreciation in value approach the limit of the margin, the speculator is called upon to advance more money. If he fail to do so, and the decline continues, the broker protects himself by selling out the article bought, charging his customer with the loss sustained, together with his own brokerage charges, and handing over to him whatever small balance may remain to his credit. In the case of a speculative sale, precisely the same methods are employed, except that as the seller’s gain is derived from a depreciation and his loss through an advance, when the “margin” is in danger of being “wiped out,” the broker closes the transaction by buying on the customer’s account instead of selling.
But to return to the experience of Mr. “Jones.” As has been said he had ventured largely, and he found himself confronted with financial ruin. Although engaged in a money-making business, he had plunged so deeply into the maelstrom of speculation that his capital was seriously impaired. What was to be done? To withdraw meant bankruptcy; yet, how could he go on? Only one way presented itself to him. He was the executor of his brother’s will and the guardian of his brother’s minor children. The trust funds placed under his control might be utilized to avert impending disaster. Not that he would wrong the orphans whose patrimony had been committed to his care, but he would temporarily borrow the money of the estate, to be returned with interest, within a few weeks. He succumbed to the temptation and the result need hardly be told. The combination formed for the purpose of controlling prices absorbed these funds as it had the others, with the same relentless rapacity as do the knights of the green cloth the last hard-earned dollar of the day-laborer. The day of settlement arrived, the bubble burst and the unfortunate man found himself buried fathoms deep in dishonor and ruin. Not only was he penniless, but he realized that wherever he went the finger of scorn pointed out his every step. A temperate man before, he plunged headlong into dissipation. His wife found herself compelled to leave him, and to-day, stripped of fortune, bereft of family, deserted by friends, he walks the streets with faltering tread, aimlessly and hopelessly; living God knows how; hanging about bucket-shops and pool-rooms, considering that a fortunate day on which, honestly or dishonestly, he can earn half a dollar.
Nor is this an isolated case. The speculator who has been alluded to is but a type of a class of men whose name is legion. The ruined reputations of confidential clerks, cashiers and administrators of trust funds mark the path of the reckless operator as milestones mark the causeway. The terrible fascination of gambling, whether through speculation or cards, when once the votary has succumbed to it, can be most fitly compared to that of the opium habit. The victim of this body-debasing, soul-destroying vice is willing to risk his hopes, not only for time but for eternity, on the gratification of his appetite. So does the devotee of the faro table or the man infatuated with the allurements of the exchange stake his life, his honor, his very salvation upon the turn of a die or the rise or fall of a particular stock.
Better, far better, were it for the man who enters a gaming resort that his first wager prove unsuccessful; far happier would he be who determines to “speculate in futures” did his first venture result in heavy loss. In either case the influence of failure would prove a deterrent sufficiently powerful to avert years of future misery, if not ultimate destruction.
The technical nomenclature of the exchange—sometimes termed the “slang of the street”—which, as has been remarked, is incomprehensible to the uninitiated[uninitiated], in itself affords some key to the nature of the business transacted. Some of the most common terms are here defined, although to enumerate them all would swell the dimensions of the present chapter beyond the limits assigned it.
A “scalper” is an operator who makes it his practice to close his transactions as soon as he can see a small profit, say a quarter of one cent. His operations are neither more nor less than betting on a rise or fall in prices.