> Basically, when you submit a trade on a broker, the exchange of money for stock doesn't actually happen until 2 days later, and the firm that handles that exchange is called a clearing firm. Before then, Robinhood just sends records: John bought 2 GME for $600, Mary sold 1 GME for $290. If that's all that happened that day, then Robinhood would need to provide $310 dollars to the clearing firm, and receive 1 stock.
> That's a credit risk - what if Robinhood doesn't have the money on settlement? The clearing firm would be on the hook.
Why would the clearing firm be on the hook? Can't they just refuse to hand the stocks over if Robinhood doesn't have the money to pay for it?
> Basically, when you submit a trade on a broker, the exchange of money for stock doesn't actually happen until 2 days later, and the firm that handles that exchange is called a clearing firm. Before then, Robinhood just sends records: John bought 2 GME for $600, Mary sold 1 GME for $290. If that's all that happened that day, then Robinhood would need to provide $310 dollars to the clearing firm, and receive 1 stock.
> That's a credit risk - what if Robinhood doesn't have the money on settlement? The clearing firm would be on the hook.
Why would the clearing firm be on the hook? Can't they just refuse to hand the stocks over if Robinhood doesn't have the money to pay for it?