Definition
The term clearing fee refers to a charge levied by a clearing house for each futures contract cleared. Clearing fees may also be associated with services such as deliveries, creation of a futures position, block trades, transfers and adjustments.
Explanation
Clearing fees are most often associated with the trading of futures contracts; however, the term can be associated with any of the services offered by a clearing house, which is an organization that stands between a clearing member and buyer and seller of futures contracts. Clearing houses maintain the integrity of the market by guaranteeing performance of a contract.
In exchange for providing these services, the clearing house will charge a fee, which is eventually passed on to the trader. In addition to a clearing fee, the trader may also pay a brokerage fee. Both fees are typically a variable cost, which means it will differ by the size of the trade, the type of transaction, as well as the underlying product of the futures contract.
As is the case with all charges and fees levied when trading securities, options, or futures contracts, an investor needs to account for this expense when calculating their potential return on the investment.
Related Terms
The term clearing refers to the process by which a clearing house becomes a buyer or a seller of a futures contract. Clearing houses maintain the integrity of the market by guaranteeing performance of a contract.
Moneyzine EditorNovember 6th, 2024
The term clearing house refers to an organization that stands between the clearing member of a buyer and seller. Clearing houses maintain the integrity of the market by guaranteeing performance of a contract.Moneyzine EditorNovember 6th, 2024
The term clearing firm refers to a company that works directly with a clearing house to execute trades on behalf of investors in futures contracts. Clearing firms act as an intermediary between traders and the clearing house.Moneyzine EditorJanuary 11th, 2024
