The commission charged to non-members is usually $7.50 for buying or selling 100 bales, and to members, $3.75, or $7.50 for the "round turn," which includes both buying and selling. It is also possible for mem bers to deal for others at 75 cents a contract, provided the name of the principal is disclosed. Margins vary greatly but are usually about one-half cent per pound, or $250 a contract.
5. Methods of settlement.—There are two methods of settlement, "direct" and "ring." If a broker sells cotton on contract for future delivery for-one customer and later in the month buys an equal amount for an other client the settlement would take place directly, which means that one transaction would offset the other. Here the principle of a clearing house is ap- • plied.
"Ring" settlements are a more complicated pro cedure and may involve as many as twelve parties. A, who is a member of the cotton exchange, sells to B 1000 bales of cotton for future delivery. But B has already sold, or will soon sell, to C who may in turn sell to A. If we assume that these transactions took place during the same month a settlement will be effected among the three or more parties. Each one has bought and sold futures for delivery during the same period with a view to realizing the difference between cost and selling price. Nothing else interests them at this point. The "ring settlement" makes it possible for them to liquidate their contracts and secure their profits long before the month of delivery.
Every transaction in cotton together with the time and price must be reported to the sales reporter of the exchange within ten minutes after the sale. Otherwise no record will be kept by the exchange. No statement of the total volume of cotton sales is published from day to day in the newspapers, as is the case with the stock exchanges.
6. Cotton futures.—Cotton is of many different grades. The proportion of the crop in each grade varies so from year to year that it would be impossible to permit deliveries of any single grade or even of two or three grades in fulfillment of future contracts. If such deliveries were permitted, the buyer would find it comparatively easy to corner the small amount of cotton that falls within each grade. Consequently the price of one grade (Middling Uplands) is selected as a basis for the prices of cotton futures, but in de livering on contract the seller may deliver not only middling but any one of a number of other grades, some of which are worth more and some less than middling. If a dealer delivers a better grade than
middling, he must receive a premium therefor; if he delivers a poorer grade he must grant a discount. The difficulty comes in adjusting equitably these premiums and discounts, or "differences" as they are called. Since the seller has the option of tendering any one of a number of grades, the buyer must have some guarantee that he will at least receive cotton which is worth all he has to pay for it. Because of the technical difficulties of determining premiums and discounts the cotton markets have for years been the center of all manner of disputes.
7. The grades.—To the layman the names given to the different grades and classes of cotton are most puzzling. Cotton is generally classified as follows : 1. White Cotton. Full Grades: Middling Fair, Good Middling, Low Middling and Good Ordinary.
Half Grades: Strict Middling Fair, Strict good Middling, Strict Middling, Strict Low Mid dling and Strict Good Ordinary.
Intermediate Grades : (the value of which must be the mean of the adjacent full and half grades) . Fully Good Middling, Barely Good Middling, Fully Middling, Barely Middling and Fully Low Middling.
2. Tinged Cotton : Strict Good Middling Tinged, Good Middling Tinged, Strict Middling Tinged, Middling Tinged, Strict Low Mid dling Tinged and Low Middling Tinged.
3. Stained Cotton: Middling Stained.
Some of these terms require explanation. In gen eral it may be said that grading depends upon three factors : (1) color, whether the cotton is white, tinged, or stained (2) comparative absence of extraneous sub stances and (3) general character of the fiber. The American cotton "staple" fluctuates in fiber length from % inch to 11/2 inches. The longer the fiber, the beater is the value attached to the class. White is the normal color of cotton, when picked before the frost sets in and affects the plant. This grade of cotton possesses greater value than the tinged or the stained. The "tinged" color is produced by the light frosting of the cotton balls prior to opening or by exposure to rain. The result is a change from white to a yellowish or golden orange color. When,storras are heavy and the frosts severe, a deep orange or tawny color takes the place of white. The New Orleans Exchange recognizes more detailed differences in this respect as "spotted," "light tinged," "medium tinged," "light stained," etc.