There is a rule of the Exchange, that all business, whether in buying or selling, transacted for parties who are not members of the Exchange, and for firms in which the Exchange member is only a special part ner, is chargeable at the rate of not less than % of one per cent on stocks selling at $1 or over, except mining stocks. If the stocks sell for less than this sum, the commission is $1 for every 100 shares. On min ing stocks, however, selling at not less than $1 and at not more than $10, the commission is $6.25 for every 100 shares. the commission named in this rule is a minimum, and members are permitted to charge as much more as they desire, competi tion makes the charge uniform at % of 1 per cent a share except in the cases already noted. Another ex ception is that for less than ten shares brokers shall make a uniform charge of $1.25 for their services, whether the transaction involves one share or nine.
The second rate is for the member of the Exchange who purchases securities for other members. If the name of the principal for whom the broker acts is not disclosed, the rate is %2 of 1 per cent or about $3.12 for each 100 shares. Otherwise, the rate allowed by the exchange is %o of 1 per cent, or $2.00 for the pur chase or sale of every 100 shares. On all organized exchanges very low commission rates are afforded members who employ other members to transact busi ness for them, but who attend to the delivery them selves, i.e., allow their names to be "given up." 3. "Bulls" and "bears."—Speculators or brokers' customers are often classified as "bulls" and "bears," according to their attitude toward the future move ment of the prices of securities. The bulls are those who buy because they expect prices to go higher, and the bears are those who sell in anticipation of falling prices. The market is therefore called "bullish" or "bearish," as one or the other class predominates in trading at any one time.
Buyers are called "long" of stocks or "long" of the market. Those who have stocks of their own to sell are simply sellers. Those who have stocks to sell, which they do not own, are "short" sellers, or are "short" of stocks or "short" of the market.
Now the buyers of stock who are contemplating a rise in its value may purchase their shares in one of two ways. The first way is to buy the securities outright, paying the full purchase price for them. Those who do this are either investors or conservative speculators. They take their securities, lock them up in a vault and go on attending to their everyday af fairs until such time as their expectations have been realized, when they take the securities to the broker's office, have them sold and pocket the profit they have waited for. If their judgment has been erroneous and the value of the securities declines instead of advances, they can either hold the securities until the price rebounds, which very frequently happens, or they can have them sold and suffer the loss. These persons, as a rule, are little concerned with the banking or brokerage interests. Their stocks having been paid
for outright, they require no money to carry them in a falling market. This class of buyer, however, is in the minority. The great majority of those who purchase in anticipation of a rise in the prices of stocks, do so upon a margin by which they advance a small part of the value of the stock, the greater portion of the funds being secured by the broker. The method by which such transactions are carried on has already been explained.
4. Process of selling short—Those on the other side of the market—the persons who are counting upon a fall in the value of stock—can operate only in one way. Evidently no one could make a profit by buying stock outright, paying for it and then locking it up in anticipation of a fall in its value. It is possible, how ever, for a man to make money if he can foresee a fall in the value of a security and govern his transactions accordingly.
It is believed in Wall Street that the public is made up for the most part of bulls, or those who play for a rise in the value of stocks, while the professional traders are more frequently the bears, or those who anticipate a fall in the value of securities. This be lief is founded upon the fact that the public, as a rule, does not speculate upon a falling market. Indeed not many understand how the transaction is carried thru. The operation of speculating on a falling mar ket is known as selling "short," sometimes called "sell ing securities, seller short." This practice is carried on very extensively.
In order that the short sale method may be made clear, let us take an illustration. Suppose a man be lieves that he has inside information that a decision will be rendered by the Supreme Court of the United States which will be very disastrous to the interests of a certain railroad company. He reasons that as soon as the decision is announced it will immediately cause a sudden fall in the value of the stock of this corpora tion. The market is quick to learn of every favorable or unfavorable condition that may affect the securities which are handled upon the Exchange. Now if the man desires to take advantage of the opportunity which he believes is presented, he will sell short—let us say-300 shares of this company's stock in order to make a profit from the fall in price which he feels certain will come. The broker, having been directed to make this sale, and having received the funds needed for the transaction, now proceeds in the regular way provided for under the rules of the Exchange. He sells 300 shares of the railway company's stock for the customer, knowing that at that time the customer in all likelihood does not own or intend to purchase the 300 shares of stock which the broker must deliver. Under his contract, the broker must turn over the stock to the buyer before 2.15 p. m. on the day follow ing the sale. Before this time arrives the broker bor rows the stock.