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Clearing house strategy

Clearing house is one of the broker's strategies. Clearing is the process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing member. A trade can either be a bilateral trade between a buyer and a seller. On the other hand, it might involve a third party "clearing" the trade. In the first instance, the parties to the trade will have to assess and mange the credit risk, which means the other party will default on its obligations of the trade.

When using a clearing house, it becomes the counterpart of the trade for the buyer and the seller. The advantages are twofold:

  • Most often the clearing house is more financially sound
  • The clearing house has a more advanced system for monitoring risk exposure for each clearing house member
  • The buyer and seller saves the resources needed to maintain a separate credit department

Clearinghouse is an independent house settling trades by acting as a guarantor for all trades cleared by it. The clearinghouse is responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.

A good clearinghouse is the partner with which you trade the money you have deposited with them in your trading account.

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