Definition of Ringing out

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TeachMeFinance.com - explain Ringing out




historic definition...

Ringing out -- This is an operation by which a transaction in a future in grain, cotton, coffee or other commodity may be concluded before the maturity of the contract. Illustration : A sells to B for delivery in some stipulated month in the future. B sells to C, C sells to D and D sells to A. Thus a ring is formed. Each has bought and sold and no actual delivery is required. In a transaction in a future each party to it (the buyer as well as the seller) deposits a margin with a designated depository as security for the performance of his part of the contract. When the ring is complete a common settling price is fixed by the proper authority of the exchange on which the transaction took place. Say A sold at 12 and bought back at 10.5 the difference is 1.5 in his favor. The settling price is 11, say. Since A sold to B at 12 he collects the difference between 12 and 11, which is 1, from B. Then, since he bought from D at 10.5 he collects the difference between 10.5 and 11, which is .5, from D. Thus, between B and D he collects his total difference. But suppose A had sold at 10.5 and bought back at 12. Then, he would pay B 0.5 and pay D 1. Contracts in stocks w. i. (when issued - see When issued) are also ringed out in the same manner as contracts in futures in grain, cotton, coffee, etc.



About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".


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