What Is the Role of a Clearing House in Futures Trading?

A clearing house acts as an intermediary between buyers and sellers in a futures market, effectively becoming the buyer to every seller and the seller to every buyer. Its primary role is to mitigate counterparty risk by guaranteeing the performance of each contract.

It does this by requiring traders to post margin and by marking positions to market daily, settling gains and losses. This ensures the financial integrity of the market and allows participants to trade with confidence, without having to assess the creditworthiness of each individual counterparty.