CHAPTER VII 
CREDIT TRANSACTIONS IN SECURITIES 
Need of Understanding Credit Operations.—In the pre- 
ceding chapter it was explained how the machinery of the Stock 
Exchange enabled one man in Baltimore to sell his stock to 
another man in San Francisco. This imaginary but quite 
typical case was, in the instance of both buyer and seller, what 
is known as an “investment transaction”’—a phrase which here 
refers only to the terms between broker and customer under 
which the sale was made.* It is to be noticed that in the case 
cited, Jones of Baltimore simply took his stock to his broker 
and employed the latter to exchange it for money, while Smith 
of San Francisco took his money to his broker and employed 
him to exchange it for stock. The element of credit did not 
enter into either the purchase or sale of the stock in any vital 
way. 
Such outright sales and purchases of stock occur in the 
Stock Exchange less frequently than purchases and sales of 
stock which employ credit, just as cash payments and immediate 
deliveries are the exception rather than the rule in ordinary 
wholesale commercial practice. Most of the significant eco- 
nomic forces in modern America find a natural and immediate 
expression in the credit transactions in securities which occur 
daily upon the floor of the Stock Exchange. Since they are so 
often misunderstood and misrepresented, a wider understand- 
ing of these credit transactions in securities is more than ever 
imperative. 
It is first necessary to consider briefly what a sale really is. 
Every sale, not merely of stocks and bonds but of any com- 
* Sen Chapter V, p. 125.