Cannon Spot Contract

A week had passed, and the war had intensified.

As Wood passed by a street corner, he stumbled upon a quaint shop.

It was selling newspapers, one after another.

The newspaper, a curious novelty, was filled with so much information, and yet it only cost one copper coin.

Wood bought a copy of The Lübeck Times.

The first thing he saw was an update on the war with the Kingdom of Denmark: a certain count had reached the front lines, the king's army had left the capital, and the Danish fleet had clashed with Lübeck's navy for the first time.

There was an interview with the mayor, proclaiming Lübeck's victory, the triumph of the Hanseatic League, and the ultimate victory of Germany.

Various pieces of information led Wood to think that his one copper coin was truly well spent.

The second page was a candlestick chart for cannon prices. This method of recording prices fascinated Wood.

The chart tracked the daily opening, closing, highest, and lowest prices of the cannons.

Wood also saw commentary from experts forecasting the future: with the war between Denmark and Lübeck, cannon prices were expected to rise.

There was even an interview with retail investors at the Lübeck Stock Exchange.

"I bought a box of cannon contracts, and I've already made a profit, so happy!"

Wood was overwhelmed with unfamiliar terms—contracts, securities.

As a businessman, especially when he saw the word "profit," Wood was intrigued.

What was this? How could it make money?

The third page was a serialized novel, which Wood glanced at briefly.

"He got me pregnant, yet he chose to leave."

For a moment, Wood was captivated by the title.

Reading the story, his worldview was profoundly shaken.

He devoured the absurdity of the plot.

Just as the most dramatic part was about to unfold, the child was finally born.

It should have been a touching ending, where the woman forgives the man, and he protects the family.

Instead, the woman unexpectedly attacked, strangling the man with her own umbilical cord.

Wood couldn't even begin to imagine that scene, feeling as if the author, with a five-year mental block, had written such a ludicrous storyline. It felt like an insult to his intelligence.

And then, the story ended with, "To find out what happens next, stay tuned for the next installment."

Wood nearly spit out blood, as the most exciting part was abruptly cut off.

He still wanted to read it... Why would he want to continue with such a ridiculous plot?

The fourth page was filled with advertisements…

Ad space for rent, and an advertisement for the Lübeck Stock Exchange, complete with address and contact information.

Wood, as a respected Hanseatic merchant, felt a little ashamed to have read such a serialized story in the newspaper.

But tomorrow, he would buy another copy, at least to finish the story.

Wood secretly decided.

But for now, the most important task was to visit the Lübeck Stock Exchange.

...

In the afternoon, Wood arrived at the Lübeck Stock Exchange's trading hall.

In an instant, he saw many familiar faces, including Müller.

These gentlemen and big businessmen sat at their desks, all staring at a blackboard.

Every 15 minutes, the prices were updated with chalk.

Simultaneously, another blackboard displayed a line graph tracking price movements.

Wood saw the words "Cannon Spot Contract Trading Price" written on the blackboard.

They were trading contracts for cannons, not the cannons themselves?

Wood noticed some common folk also engaging in trading. The contracts were printed using movable type printing and only required filling in the direction, quantity, and price, then signing and stamping before making a payment to complete the transaction.

This astounded Wood. Could even common folk trade cannons now?

He quickly found a fellow merchant he knew and walked over to inquire, "How does this work?"

"Ah, you've come too? It's quite fun! This is paper cannon, just like trading cannons."

"Müller came up with this?"

"Yeah, Müller stored all the cannons in a warehouse, then turned them into contracts. These contracts are paper cannons."

"So, you're trading paper?"

"Exactly. If you hold a long contract, for example, if you bought a box of paper cannons, you can exchange the contract for real cannons from the warehouse. So, paper cannons are real cannons."

"Then why haven't I seen you redeem them?"

"Why would I redeem them? The cannons are safely stored in Müller's warehouse. I've been doing intraday trades, buying and selling, and have already made three profits."

"How do you make money?" Wood was stunned.

"Did you see the line graph? When it gets close to the support level at the bottom, buy. When it nears the resistance level at the top, sell."

"Is it that simple?" Wood could hardly believe his friend made money so easily.

"Also, you can use leverage. Borrow ten times the amount from the exchange to buy cannons."

"Or you can short them, borrow cannons from the exchange, sell them, and then buy them back, pocketing the difference."

"And you can short with ten times the margin."

"Of course, everyone knows cannon prices will rise, so no one shorts them."

Wood fell silent. The ability to leverage ten times meant that if you made a profit, it would be ten times as much. No wonder even common folk could afford to buy a box of cannon contracts.

"You see, the price is approaching the bottom again. Time to buy more. I'll buy 20 more boxes of cannons."

Wood watched his friend, who found a worker in a red vest, got a contract, and expertly filled out the details: direction, quantity, price, signed, and stamped.

The worker processed the transaction, handed over a receipt, and said, "Transaction successful."

Wood saw that the receipt showed the price at which the transaction had been made, as well as his friend's position of 160 boxes of cannons.

The exchange took a 1% service fee, and the Jewish goldsmith's shop also took a 1% service fee.

They transferred the funds through the Jewish goldsmith's wholesale transaction.

Wood couldn't help but shout, "Young man, I'll buy 20 boxes of cannons too."

The young man in the red vest cheerfully responded, "Alright, sir. I'll get the contract, and you fill it out."

And so, the afternoon passed.

Wood had completed a daring leap, selling his cannon contracts near the top resistance level, making a tidy profit.

Making money was so simple.

Wood was completely dumbfounded, wandering in a daze.

His friend also sold 40 boxes of cannons at the top and slapped Wood on the shoulder.

"We've all misunderstood Müller. He's a saint among merchants. I never thought of trading at this frequency before. Müller invented such an efficient trading method."

"Müller bears the warehouse rent but turned the cannons into paper contracts. Even if we hold the contracts until tomorrow, we don't have to pay for warehouse rent. What exactly is Müller's reason for doing this?"

"I asked him. He said it's for price discovery. To let the market complete resource allocation more efficiently."

"He's such a saint of commerce. I've misjudged Müller. I shouldn't have called him a traitor sent by the Danish Kingdom."

...

That evening, Edward, Müller, Baron, and the Jewish merchant Yossef gathered in the meeting room on the fifth floor of the Lübeck Stock Exchange.

Yossef, the Jewish goldsmith, had never imagined that this German youth could invent something like securities, and even wanted to include him in his team.

In Europe, Jews were widely reviled, especially by Germans, who saw Jews as wealthy yet dirty, avoiding them as carriers of the Black Death.

But Edward included Yossef in his team.

Edward sighed, "There's no choice. Right now, only the Jewish goldsmith's shop has the capacity for large transactions. I didn't want to bring him along, but…"

In any case, Yossef had made a fortune from transaction service fees.

Each time a transfer occurred, there was a 1% fee.

Edward's exchange also earned a 1% service fee with each trade.

At first, Yossef didn't think much of it, but due to the convenience of trading paper cannons, the volume of transactions was immense. Within just a few days, Yossef had become Edward's sycophant and lackey, even wanting to marry off his daughter to Edward.

This amused Edward greatly.

Of course, Edward's primary concern was helping Müller and Baron sell off their positions at a high price.

Edward began, "As of now, there are no traders redeeming paper contracts for real cannons from the warehouse. We've established preliminary trust, so we can gradually increase the supply of short paper cannon contracts."

Müller reported, "I visited the town hall this morning, briefing the mayor and military leaders. We're collecting for the nation and for price discovery. The military agreed to buy the real cannons at 70% of the market price. The military leaders praised me."

Baron reported, "Boss has asked us to gradually begin setting up short contracts to hedge our long positions. Progress is smooth, and we've already hedged a third of the positions."

Edward nodded.

When the exchange was first established, Edward had already started to securitize the actual number of cannons in the warehouse.

Müller and Baron's accounts directly showed the number of cannons they owned.

These were their long positions.

To complete the daring leap mentioned by Marx, Edward needed to turn these positions into real money by exiting at high prices.

Edward instructed them to gradually release small positions, creating short positions to hedge their long ones.

Of course, if a large transaction came along, they could directly liquidate their long positions. Otherwise, they would gradually build short positions until their short positions exceeded their long positions.

Müller was lucky; a Hanseatic merchant approached him for a large transaction, and Müller liquidated his long positions, exiting with a 10% profit in a single move…

Baron wasn't as lucky and had to carefully maintain the price while gradually building short positions, with the goal of covering all of his long positions and exiting at the top.

Edward, as the mastermind, controlled the entire process of the project.

Behind the cover of collecting for the nation and price discovery, they gradually began to sell at higher prices.

Large funds naturally leaned towards short positions. Edward finally understood the meaning of this phrase.

Because most people are long, accustomed to buying, large funds must go against them.

Edward was essentially printing paper cannons and selling them to speculators, who wouldn't redeem their contracts for real cannons.

So, it turned into a virtual market—Edward could print as many paper cannons as he liked.

Edward remembered a story from his past life: a speculator bought apple futures contracts, but when they lost money, they stubbornly held onto the contracts, refusing to sell. When the contracts expired, the exchange demanded the apples or storage fees.

The speculator couldn't afford the storage fees, and the exchange grew furious. They delivered countless crates of apples to his house, where they piled up.

The man had to sell them online.

The story spread through the financial circles as a cautionary tale.

It was clear that speculators didn't want to bear the physical market's burden, so Edward turned the market into a virtual one—low risk, high profit.

In Lübeck in 1370, before the eyes of the ancient witnesses, Edward would complete one dazzling operation after another.