How Does a Clearinghouse Mitigate Risk in Futures Trading?

A clearinghouse acts as the buyer to every seller and the seller to every buyer, becoming the central counterparty (CCP) to all trades. By interposing itself, the clearinghouse guarantees the performance of the contract, effectively eliminating counterparty risk between the original buyer and seller.

It achieves this through strict margin requirements, daily marking-to-market, and its own default fund. This centralization ensures market integrity and stability.