The Providence news. (Providence [R.I.]) 1891-1906, 1897-06-08
BEARS AND BULLS.
The ModuS Operandi of Stock Mar
ket Explained.
Transactions on Both Sides, and How
They are Conducted.

We do not know whether IL Is the fail
supernuity OF advertisements of .safe
systems of speculation, that has brought
So many inquiries as TO the exact methods
of trading In stocks nevertheless, the
fact remains that whatever the cause,
these inquiries keep coming in, and we
propose To answer them collectively In
the following remarks:
We would first caution those who intend
TO embark a small or great capital on the
troublous and treacherous sea of specula-
ton, To have nothing TO do with any
brokerage house not members OF one OF
the recognized stock exchanges, either in
Boston, New York, Philadelphia or Chi
cago. We will assume that Mr.. Blank
desires To buy 100 shares of Sugar on spec
ulation; that is, he does not desire to pay
for the stock outright, but desires to de-
posit the regular l0.point margin with
his broker aud have the latter carry the
stock for him until he decides to sell.
A ten point margin on 100 shares calls
for $1,000, which sum he deposits with tho
broker, telling the latter to buy for his
account 100 shares Of Sugar. Supposing
sugar at the time sells at ll5, the broker
must pay $ll 800 for the 100 shares. The
man VIII -HDought the stock row owes the
broker So 500, on which he Is charged
interest at the rate of or d per cent. If
sugar goes TO l20 and he decides To sell
at that figure, he has mads $500 on his
100 shares minus commissions for buying
and selling of S25 and the interest for the
period intervening between the dates OF
purchase and sale.
or course, 1t would be lovely If one had
oaly to buy stock and see IL advance right
away, but fortunately for general bust
ness, the arts, industry and science, stocks
on Q-fl Ia 90
not infrequenty happens that purchaser
of 100 shares OF Sugar or any other stock
Is obliged 20 soon put up additional mar
gin by reason of the decline In the price
For example. take the case of the man
who bought Sugar at lib His $1,000 de-
uosit margins his 100 snnres down 20 105
In other words, the broker Is protected
down To that figure, but many houses
make IL practice to have their customers
keep their stocks literally margined all
the time, so chat In case sugar should de-
cline four or five points. the chances are
that the man who hought at ll5 would be
requested to deposit five points moro mar
! gin. or $500
The above Is what is called trading on
! the "long" or "hull" side: that is, buy
ing fer an advance Then there is the
snort or bear side of the account or
| selling for decline. This Is n part of the
speculative game That is most difficult for
! the outsider 70 understand Indeed, the
! writer has endcaN ored 10 explain 10 many
! times to IA successful Business man and IL
/ is doubtful whether the latter rs yet fully
| understands tho operation.
Suppose Mr.. Blank believes or knows
! that somo st 1ck Is going TO drop in price,
' say Sugar again, for example He goes GO
! q broker, deposits SION (ten point mnrglnl
/ aud tells him To sol! Tor his account lot
/ shares OF sugar at il5. You will ask. how
b, cpll M yt fbnf ln N
! But wnit and see. The broker has his
! floor member or correspondent on tire floor
/ OF tho Exchange sell 100 shares Of Sugar
| at ll5 All stocks bought or sold being
4 deliverable on the following day. thI
| broker who sold 100 shares OF sugar foi
! Mr. Blank borrows 100 shares of Sugar from
/ some other brokerage house or operator
on the Exchange and makes good the de
4 livery tho next day,
Now. supposing that sugar does GO dowr
To 40 and Mr. Blank Is satisfi 81 wita tn,
I five point profit he gives AN order to hi'
, moier TO buy In or cover his 100 shares o
I short SUGAR at 10. This the bro el
/ DOES, returning the stosk co THO firm ol
individual from whom he earlier borrowed
| IT, MIR. Blank has thus sold 100 shares o
I Sugar Tor which be received Sll.blJ. and
! has bought IL hack FOR Sll, coo His prof
therefore Is 1000, minus the commission
I ot S21. There Is no interest to hc deducte,
I'm this case because tho broker has no
been Obliged 90 use any of hts capital M
WAS the case when the stock was bOugh
and cATro1 for an advance.
When stocks are plentiful In the "loaI
! crowd the lOnning rate varies from
perhaps 3 60 o por cent that u, the lendc
pays that 90 thu borrower for carrying hi
stock Sometimes, however. 10 happen
that tho "short interest I'm a stock is -
hoavy that ~ is hard 20 borrow ard th
stock loans as "A premium for use, say
/ 30 for uss over night This is the oxccp
tion rather than the rule, however.
Here Ia feature 20 the stock brokcrag
husiuoss which has not como IN as w
for extendei notice but which deserve
condemnation. IL is that brokers len