The work of the Stock Exchange

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Monograph

Identifikator:: 1831284952

URN:: urn:nbn:de:zbw-retromon-225876

Document type:: Monograph

Author:: Meeker, James Edward http://d-nb.info/gnd/126597340

Title:: The work of the Stock Exchange

Edition:: Revised edition

Place of publication:: New York

Publisher:: The Ronald Press Company

Year of publication:: [1930]

Scope:: XVI, 720 Seiten; Illustrationen, Diagramme

Digitisation:: 2022

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter VII. Credit transactions in securities

Collection:: Economics Books

190 THE WORK OF THE STOCK EXCHANGE any speculative profit in the transaction, its speculative risks are placed squarely up to him. “Short Covering.”—Sooner or later Thompson will wish to conclude the transaction, which from his standpoint may or may not have been successful. If unsuccessful, he may lose a part or perhaps the whole of his margin. Let us, however, suppose that the price of Corn Products has sunk from 100 to go. Thompson, in order to take his profit, instructs White & Co. to buy 100 shares of the stock to cover his short sale (i.e., make his deferred delivery of stock). White & Co. buy the 100 shares at go and turn them over to Green, who promptly returns the money he has borrowed (then probably amounting to about $9,000) to White & Co. Thus Green, having recovered the stock he loaned and paid back the money he borrowed, is eliminated from the transaction, leaving only White & Co. and their customer Thompson, still involved in it. The debt of stock which Thompson owed White & Co. and which the latter owed Green, has, as we have seen, been all wiped out by the delivery made to Green. Thompson, apart from his original margin of $3,000, had a credit on White & Co.’s books for $10,000 (the original price of the stock), and after paying out $9,000 to purchase the 100 Locomotive has, in consequence, in addition {o the original $3,000 margin, a profit of $1,000 minus brokerage commissions, dividends paid while the short sale was still unconcluded, and stamp taxes. And thus Thompson's whole short sale terminates. Reciprocal Nature of Short Sales and Margin Purchases. —Some critics of stock market transactions, while conceding the necessity for purchasing stocks on margin, still believe that short sales should be forbidden. This attitude of mind is the more remarkable when it is realized that every purchase of stock on margin simultaneously causes a short sale of money, and, conversely, that every short sale of stock inevitably causes a margin purchase of money.

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