how clearing works
clearing is the process of reconciling purchases and sales of various options futures or securities and the direct transfer of funds from one financial institution to another the process validates the availability of the appropriate funds records the transfer and in the case of securities ensures the delivery of the security to the buyer non cleared trades can result in settlement risk and if trades do not clear accounting errors will arise where real money can be lost an out trade is a trade that cannot be placed because it was received by an exchange with conflicting information the associated clearinghouse cannot settle the trade because the data submitted by parties on both sides of the transaction is inconsistent or contradictory stock exchanges such as the new york stock exchange nyse and the nasdaq have clearing firms they ensure that stock traders have enough money in their account whether using cash or broker provided margin to fund the trades they are taking the clearing division of these exchanges acts as the middleman helping facilitate the smooth transfer of funds 