THE SHORT “TURNS,” OR, WHO MAKES THE PROFITS?
[Sidenote: THE “TURN” A KNOWN QUANTITY ALWAYS AGAINST THE SPECULATOR.]
Although we have already alluded to this question of “turns,” in
referring to the forces, so to speak, in the markets which are arrayed
against the speculator, we have thought it advisable, subsequently, to
give it a separate chapter. The “turn” is a known quantity about which
there is no doubt, and in which there is no element of chance to be
reckoned upon according to any doctrine of probabilities, as sometimes
favouring one side, and sometimes the other. The “turn” may be described
in brief as the income of the jobber, or in other words that fractional
part of the whole sum which, if a buyer of some stock, he gets by its
sale in excess of what he pays—and if he be on the other hand, a seller,
the “turn” is that proportional part of the whole sum which he gets in
excess on buying back the stock, in order to square his book. Supposing
the two operations of a purchase and a sale proceed first from a bull
speculator, and secondly from a bear; the jobber in the one case covers
himself as soon as he can by a purchase of the stock sold by the first
operation, and by the sale of an amount equal to that bought by the
second operation.
[Sidenote: THE “TURN” A LOSS ON GOING INTO AND ALSO IN COMING OUT OF THE
MARKET.]
The “turn” comes in the second rank of obstacles which stand between the
speculator and the goal, or profit, which it is his aim to reach, and
is the most formidable of the fixed and, it may be said, inevitable,
elements arrayed against him at the start. When a speculator enters the
markets, therefore, he has to do his share of keeping both the broker
and the jobber, and that not only when he commences his operations,
but also when he finishes. There is the “turn” to be paid on going
in, and also on coming out. The same may be said of the broker, only
under certain circumstances. It is customary for a broker to charge no
second commission on closing an operation, if it be done in the same
account as that in which the operation was commenced. As speculators,
however, especially the haphazard kind, are never contented to take small
profits, and get out of the markets, they almost invariably pay a second
commission. Thus there may be said to be two double fixed quantities,
which are piled up against a speculator at the start.[44]
[Sidenote: THE DIFFERENCE IN THE CHARACTER OF THE “TURN” AS COMPARED WITH
FORMER TIMES.]
[Sidenote: SPECIAL DANGER OF SPECULATING IN A STOCK THAT IS QUOTED VERY
WIDE.]
If there be any difference in the character of the “turn” as compared
with former times, it must be allowed that there is a point in favour
of the speculator: whether it be more apparent than real, owing to the
growth of other adverse influences is another matter. But it is certain
that the “turn” is not so great in these times as it used to be, and it
comes from the increase of competition by the larger number of jobbers
in the markets, just as commissions in all businesses have dwindled
down from two and three per cent., and in some cases much more, to
¼ and ½, and in the Stock markets to ⅟₁₆ and even a ⅟₃₂. It should,
however, be remarked that, owing to the great increase in the number
of transactions, the jobber makes more in these times by the smaller
“turns” than he did formerly out of the large ones, the increase being
in a greater ratio than the diminution in the amount of the single
“turn.” Moreover the public, as it is to be hoped should be the case
with the growth of intelligence and the spread of education and wealth,
decline to buy stocks when very wide prices are quoted to them from the
jobbers. It stands to reason that the jobbers rather enjoy dealing in
stocks where there is a good deal of cover for them to play with their
prey. A difference of two or three per cent. between the buying and
selling price affords the jobber much more scope in fixing the “turn”
he is to get out of a transaction. The wide quotations between a buying
and selling price are no doubt to some extent a legitimately justifiable
defence against the sudden and perhaps violent fluctuations to which an
indifferent security is exposed, and it is on this account the price is
made wide. As the public, however, get to know and understand that a
stock which is quoted say 35 to 38, as compared with one that is quoted
85 ⁵⁄₁₆ to ⁷⁄₁₆ is in proportion to the difference between the extremes
of the two figures, a worse security, so they instinctively avoid any
operations at all where there is no knowing from one moment to the other
whether their property is worth one per cent. more or less. In fact many
young operators have been electrified to find that, having purchased on
speculation some stock of the character of that quoted above at 35 to
38, and wishing to get out of the bargain, for some reason or other,
there was a difference between the buying and the selling price of
actually as much as that indicated, viz.: 3 per cent. Ruinous mistakes by
the unwary are thus made. They fancy very naturally that a stock which
is subject to violent fluctuations, and which is seen to fall and rise
two or three per cent. in a day, is a fine field to operate in; but the
compensation which is in all things, soon reveals itself here in the
manner described, so that the speculator stands perhaps even less chance
of making a profit off a widely fluctuating security than he would by one
that moved to a smaller extent over or under a central point of value
from which there was not so much movement.
Then again, a jobber is willing to take a much smaller “turn” on a
transaction which he can depend upon closing in his own book at any
moment, at probably only a fractional difference in price from that at
which he opened it. A speculator wishes, for instance, to buy £10,000
Consols for the rise at 92½. At the time the transaction is done the
jobber knows he can any moment square his book as far as that operation
is concerned, within a trifle of the same figure, and he is accordingly
satisfied with a small “turn.”
On the other hand, a stock that fluctuates violently may leave a buyer
of it a loss of one or two per cent. before he has entered the operation
in his book. The consequence is that a speculator proposing to buy for
the rise £2,000 of a stock which is quoted in the markets at 35 to 38,
will have probably to pay 38 or near about that for it, for the simple
reason that the jobber who sells knows that a widely-quoted stock is
liable to unusual movements in both directions, and he protects himself
accordingly, by declining to sell except at the higher figure, or to
buy except at or below the lowest. The difference may even be wider
than in this hypothetical case. The stock may recently have become very
much depreciated in value, which carries with it the obvious suggestion
that it may fall still further indefinitely, short of the bottom,
for reasons which have so far contributed to depress it. Under such
circumstances, unless the jobbers in the markets have limits at which
to buy such a security, they probably will refuse to purchase from an
outside seller, or from anybody, at any price, unless it come within
the range of a fancy figure. With stocks, therefore, that are liable to
sudden and considerable changes in value, the “turn” assumes dimensions
in proportion, and speculation in such securities is correspondingly
dangerous.
[Sidenote: THE “TURN” THE INCOME OF THE JOBBER.]
For every operation that a speculator enters upon, he contributes to the
income of the jobber. Although this statement is perhaps not literally
accurate, inasmuch as the jobber may sometimes have to sacrifice his
“turn,” and even more, in selling stocks which he has bought in the
course of his business, or in buying back stock which he has sold, it is
sufficiently accurate as demonstrating the position of the speculator.
Whether or not subsequent circumstances deprive the jobber of the turn
he considers himself in the ordinary course of events to have secured,
the speculator has in any case paid it, which is all we are concerned to
show.[45]