In the previous chapter I spoke of the fortnightly settlements on the Stock Exchange, and I promised to give a fuller explanation of them in this. The meaning of it is connoted by the word itself. Every fortnight all the bargains transacted during the account - which is the period that runs from settlement to settlement - are settled up, the days being fixed by the committee some time in advance. The great bulk of the transactions on the Stock Exchange are done, as I have already said, for the next settlement. If you buy shares, you pay for them at the next settlement, and if you sell them, you do not expect to receive payment for them until then. Some few years ago there used to be three days devoted to the settlement, but the speculation in mining shares increased so enormously that the committee were compelled to add an extra day, so that the settlement now extends over four days. The first day of the settlement is called contango or continuation day, the second, or, rather, the third, day is ticket day, and the last pay day. I will take these days seriatim.

On contango day the broker has to ascertain from us whether we wish to take up the shares we have bought or carry them over to the next settlement, and if we signify that we will take them up, then, of course, the purchase will be duly completed. But if we do not wish to take up the shares, but to carry them over, then we have to pay something for the privilege, as, of course, it is only right that we should do, and this is called the contango rate. Therefore, we carry over the shares at what are called the making-up prices, which are fixed at the hour of noon on that day by an official of the Stock Exchange, and we accordingly receive the differences due to us or pay over the differences due from us.

For instance, we have been speculating in Modderfonteins, which we bought at 11 13/16. But the making-up price is £12, so the broker hands us over the difference between the two prices, which is our profit. But suppose the making-up price was only 11 1/2, then we shall have to pay a considerable difference, which will mean a big loss. We may not have the money wherewith to take up the whole of the shares, and may be merely speculating for the rise, and in that case we have no other choice than to pay the contango rate and carry them over, in the hope that during the next account the shares may rise considerably in value, and thus give us a big difference to receive, which will more than recoup us for our loss. This is what is meant by speculating for the rise - a phrase that is so familiar to us in the money article in our papers.

A broker, however, is not bound to carry over the shares unless he choose, but, as a matter of fact, he always does, this being one of the unwritten but most rigid laws of speculation. The contango rate on Modders we find to be, say, 8 to 10 per cent. per annum, which means we shall have to pay 10 per cent. for the privilege of carrying over, out of which the seller of the shares, whom we have not paid, should receive 8 per cent., the difference between the two prices going to the jobber. These contango rates depend upon many influences, upon the dearness or cheapness of money, for one, and also upon the commitments open for the rise. If money is cheap, the rate will be light, and if dear the rate will be heavy. If the commitments for the rise are heavy, then, of course, the rate will be higher than if those commitments were limited, for there will be less accommodation needed, and therefore a less demand for money. Moreover, the nature of the share itself likewise affects the contango rate, the latter being proportioned to its riskiness or insecurity.

If we do not pay for these shares ourselves, then somebody else does, and this is generally the broker or the jobber. And to do this they have to borrow from the banks, lodging with the latter the shares as collateral security, for which they have to give in addition a margin of not less than 10 per cent. The jobber or the broker has to provide for all this out of his contango rate, which is paid by the bull, and thus we see how the rate is determined by a variety of influences, chiefly by the interest ruling for money, and the volume of speculation open for the rise.

There is also a backwardation rate, as well as a contango rate, the former being the fee paid by the bears, or speculators for the fall, as distinguished from the latter, which is paid by bulls, or speculators for the rise. Suppose now, instead of buying Modderfonteins at 11 13/16, we sold the shares at 11 11/16. But we do not possess those shares, and if we were called upon to deliver, we should have to buy them at the lowest price we could.

We hope, however, that the price will fall, for if it does we shall be able to buy at a lower price than that at which we sold them, and so make our profit. If, therefore, the price drops to 11 9/16, we shall receive from our broker 1/8 on every share we sold, but if the making-up price is 11 13/16, then we shall have to pay 1/8 to the broker, which, if we have not the shares to deliver over to him, will represent our loss on the speculation. We accordingly postpone delivery of the shares until the next settlement, in the hope that they will fall during the succeeding account, and for this privilege we have to pay a backwardation rate. Say the rate is 5 to 7 per cent., this means that the buyer of the shares receives 5 per cent. and the jobber the rest. As a rule, of course, the bulls vastly outnumber the bears, so it is but rarely that we hear of a backwardation rate being charged. Sometimes they happen to balance each other, and when this is so we hear that a certain share has been carried over 'even,' meaning, of course, that no interest has had to he paid in the way of rates. This, then, is what is done on contango day, and I hope my explanation has been lucid enough for every reader to understand.