Why Is Collateral Required by the Clearing House from Futures Traders?

Collateral, primarily in the form of margin, is required to protect the clearing house and the integrity of the market from counterparty default. It serves as a financial guarantee that a trader will fulfill their obligations under the contract.

If a trader incurs losses and fails to pay, the clearing house uses the posted collateral to cover the deficit. This ensures that the non-defaulting party receives their profit and prevents a chain reaction of defaults.