The entity that stands between every futures buyer and seller, guaranteeing both sides and collecting margin.
When your trade matches, the clearing house immediately steps into the middle through novation: it becomes the buyer to every seller and the seller to every buyer. You never carry counterparty risk against the anonymous person on the other side; you carry it against the clearer.
That guarantee is backed by a waterfall — the defaulter's margin, then their clearing member's capital, then the guaranty-fund, then the clearing house's own money.
Example: CME Clearing collects variation-margin twice daily across millions of positions. In the 2008 collapse of Lehman, its futures book was transferred and closed without loss to other customers.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.
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