(86 . THE WORK OF THE STOCK EXCHANGE
money rather than in terms of goods, owing goods is apt to
seem to the average man much more dangerous than owing
money. Let us follow through its various stages, a typical
short sale of stock occurring on the New York Stock Ex-
change, and see if this practice is the evil and nefarious thing
which many sincere but superficial critics of the stock markets
would have us believe.
Selling 100 Corn Products Short.—Thompson, who is a
“bear” and anticipates declining prices, instructs his brokers,
White & Co., to sell 100 shares of Corn Products stock short
for him at 100. Thompson does not possess this stock, but
can, of course, buy or borrow it whenever he so desires.
Before proceeding to execute this order, the brokers must not
only have confidence in Thompson’s financial responsibility, but
will probably insist on possessing tangible evidence of it in the
form of a margin of—say—3o0 points, or $3,000, to protect
themselves against the unwelcome possibility of a rise in the
price of the stock to be sold. It is also understood between
Thompson and White & Co. that in case Corn Products
stock should advance in price, Thompson will maintain this
30-point margin by putting up more margin, so that a surplus
of $3,000 shall always remain after the current purchasing
price of the stock has been subtracted from the price of $10,000
at which it was sold plus the Customer’s margin. As in the case
of a margin purchase, the broker in the event of an upward
movement in the value of the stock will demand that Thompson
put up a proportionate amount of additional margin, while if
the price of the stock declines, Thompson's margin will be in-
creased to that extent. Also, in case Thompson does not
furnish the additional margin when this becomes necessary
and is requested by his broker, the latter will proceed to buy
100 shares to conclude the transaction and return to his cus-
tomer what remains of his margin. In a short sale the cus-
tomer is not called upon to pay interest charges, since he is
not borrowing any money. But, as we shall see. he must expect
