Options trading clearing house

Options trading clearing house

Posted: gorobina On: 21.07.2017

Clearing is a fundamental benefit in the futures markets. They also provide access to trading platforms, where the buyer and seller agree on the price, quantity and maturity of the contract. Then, when the contract is cleared by matching these offsetting one buy, one sell positions together, the clearing house guarantees that both buyer and seller get paid.

Clearing houses provide clearing and settlement services for futures traded at an exchange. They act as the neutral counterparty between every buyer and seller, ensuring the soundness and integrity of every trade.

This is more or less what you see when you make an electronic trade. Behind the scenes, however, a number of things happen to make sure that the trade goes through without a hitch.

The clearing house lives at the core of a futures exchange. Member firms act as a sort of intermediary between the traders and the main clearing house.

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When Bob first started trading futures, he chose a clearing firm to work with. Think of it as the middleman between the trader and the futures exchange. When the firm receives Bob's order, they review his financial information and past trading activity.

They make sure he's got the money he'll need, and that he's playing by all the rules. If Bob is good to go, the clearing firm then submits his order to the central clearing house at the exchange.

This clearing house is a major part of any exchange because all orders flow through it, and all clearing firms must meet very specific criteria to work with it. At this point, the clearing house is legally responsible for all the risk related to the trade. Its job is to make sure that Bob and the cattle rancher agree on the price, quantity and timing of their futures contracts.

Futures & Options Trading for Risk Management - CME Group

The trade is now submitted back through Bob's clearing firm, and then Bob reviews the market data before the trade is confirmed and complete. That's how long that entire clearing process took.

OCC: The Options Clearing Corporation

To understand how fast that is, consider that a single camera flash takes milliseconds. For the millions of trades that flow through an exchange each day, this clearing function protects the integrity of every single trade, helping to maintain the security of the broader marketplace.

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options trading clearing house

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For Educators Share Facebook Twitter Google Plus LinkedIn Email. Explore the Marketplace The Clearing House: The Integrity Behind Every Trade. A central marketplace where buyers and sellers come together to trade futures and options contracts. How clearing works Clearing houses provide clearing and settlement services for futures traded at an exchange.

Clearing made clear This is more or less what you see when you make an electronic trade. Clearing, plain and simple Get a big-picture look at the clearing process of a large global exchange.

What is a Futures Clearing House?

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