In buying or selling wheat, corn, etc., there are a few essential points to understand although entering into detail upon this subject is not within the scope of this work. Trading in grain is not a common field for the investment of funds on the part of such as it is the intention of this book to assist.
Chicago is the leading grain and provision speculative market in the world, and, on account of its being such a large distributing market, is very apt to dominate prices. Short or abundant crops of course naturally affect the price of grain. In dealing in grain, one usually speculates in what are called "futures"; that is, if you should buy grain in February, you would very likely buy May grain, but if you should retain your contract and not sell it until the first day of May, it would become cash grain, as the seller would then have the right to deliver to the buyer of the contract at the maturity of the option. Deliveries may be made on grain from the first to the last of the month inclusive. Therefore, if one "long " of May "futures" has the grain tendered for delivery on May 1st, he would be subject to paying cash for it and also charges for storage, insurance and certain other costs.
It is evident that one buying grain contracts, as a matter of speculation and not investment, should liquidate the same before the maturity of the contract, or transfer the interest to some later month. This is known as "switching."
Before the markets were disturbed by the World war, the usual "margin" required for transactions in grain was about 10 cts. per bushel.
The usual trading unit is in contract lots of 5,000 bushels. The commission charges of the Chicago Board of Trade for the purchase, or for the sale, or for the purchase and sale, are at the rate of $7.50 per 5,000 bushels or multiples thereof, and $2.50 per 1,000 bushels or multiples thereof, in lots of less than 5,000 bushels.