What Is the Role of the Clearing House in Managing the Risk of Futures Contracts?

The clearing house acts as the guarantor of futures contracts, becoming the buyer to every seller and the seller to every buyer. Its primary role is to manage counterparty risk, ensuring that both sides of a trade honor their obligations.

It does this by collecting and monitoring margin deposits from all participants and facilitating the daily mark-to-market settlement of all positions. This mechanism provides confidence and stability to the derivatives market.