Clearing (finance)

Clearing in finance is like when you play a game with your friends and you all put your toys in a big pile in the middle. Instead of sorting out each toy individually at the end, you can have one person (called the "clearinghouse") take all the toys and make sure everyone gets the right amount back.

In finance, clearinghouses work the same way with money. They take all of the trades made by different people and make sure that everyone gets what they're supposed to. For example, let's say you buy a share of a company's stock for $10 from someone else. The clearinghouse will make sure that you get that share of stock and that the person you bought it from gets their $10.

This helps keep everything organized and fair so that everyone gets what they're supposed to. It also helps make transactions happen faster and more efficiently. Without clearing, trading would be a big mess and it would be hard to make sure that everyone was getting what they're supposed to.