Central counterparty clearing houses are third parties that get between lenders and traders to pool risk. They function to net out liquidation risk: if any one trader fails to get liquidated, the damage is spread out across lenders so that the damage to any one lender is minimized.The central counterparty clearing house becomes the counterparty to the buyer and the seller and guarantees the terms of a trade even if one party defaults on the agreement. The central counterparty clearing house collects enough funds from each buyer and seller to cover a lender's losses if an agreement is not followed through.

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