flour orders.

In the meantime where is the wheat? Out near the fields where it was
grown, in country elevators perhaps, ready for transportation to market
as the law of supply and demand dictates instead of the whole crop
being dumped at once and smothering prices below the cost of
production. Or perhaps it is in store at the terminal where Mr.
Exporter can handle it. It will be seen that the mutual arrangement to
buy and sell for future delivery simplifies matters for everybody in
the grain trade.

The manner in which the legitimate trader in futures protects himself
from price fluctuation is easily understood. While a deal in cash
wheat would refer to a definite shipment as shown by warehouse
receipts, a deal for future delivery is merely an obligation involving
a given quantity of grain at a given time at a given price. Being
merely a contract and not an actual shipment, the seller does not
require to produce the grain immediately nor is the buyer required to
hand over the purchase price when the trade is made. Thus it is
possible to buy a thousand bushels to-day for October payment and sell
a thousand bushels to-morrow for October delivery, cancelling the
obligation. The trade can be balanced at any time before October 1st.
Again, a thousand bushels of October wheat may be bought (or sold)
to-day and the future switched to May 1st by the sale (or purchase) of
a thousand bushels for May delivery.

Take the man with the blazing red tie half way up his collar, the man
who this morning offered to sell fifty thousand bushels for October
delivery at $1.43 7/8. Suppose that he represents a company with a
line of elevators at country points. To his office at Winnipeg has
come word from country representatives that fifty thousand bushels have
been purchased for the company. At once he enters the Pit and sells
fifty thousand bushels for delivery at a future date, thereby "hedging"
the cash purchase out in the country. Once this future of fifty
thousand is sold the company no longer is interested in market prices
so far as this grain is concerned. If the market goes up, their cash
grain is that much more valuable, offsetting the loss of an equal
amount on the future delivery; if the price goes down, what is lost on
the cash wheat will be gained on the future. So that the difference
between the price paid for the grain at the country elevators and the
price at which they sold "the hedge" is the only thing whic