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Nisha Chandani made post

What happens if the other party in a trade defaults on the trade?

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2 years ago

The exchange ensures that the trade is honored during the settlement. Whether the seller has the required stock to sell or not, the buyer will receive his shares. If a settlement is not upheld, the sanctity of the stock market is lost, because it means trades may not be upheld. The exchanges guarantee every trade through the clearing corporation, which acts as the counterparty for each and every trade. Effectively, the buyer and the seller trade with the clearing corporation and not with each other.