What Is the Function of a Clearing House in Futures Trading?
A clearing house acts as a central counterparty for all futures transactions, standing between the buyer and the seller. Its primary function is to guarantee the performance of the contract, thereby eliminating counterparty risk for the traders.
It achieves this by becoming the buyer to every seller and the seller to every buyer. The clearing house manages margin requirements, collects and distributes margin payments, and ensures the orderly settlement of contracts.
