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MODULE 01 LESSON 03

Venues, brokers and clearing

How an order moves from your screen into an exchange or dealer market.

11 min readFoundationKnowledge check

A trading app hides a chain of institutions. Knowing the chain helps you evaluate execution, custody, counterparty exposure and what protection may apply if something goes wrong.

Core concepts
01

Exchange versus OTC

Exchange-traded products use standard rules and a central venue. Over-the-counter products are contracts between counterparties, often a client and dealer. CFDs are OTC; listed shares and many futures are exchange-traded.

02

The broker

A broker receives and routes orders, holds assets or cash under a defined custody arrangement, and charges through commission, spread, financing or other fees. The cheapest headline price is not always the lowest total cost.

03

Clearing

A clearing house stands between buyers and sellers in many exchange markets. It manages obligations, margin and daily settlement to reduce counterparty risk, although it cannot eliminate every risk.

KEEP THESE

The lesson in three lines.

  1. 1Know whether the product is exchange-traded or OTC.
  2. 2Execution, custody and clearing are separate functions.
  3. 3Regulatory protection depends on firm, product and jurisdiction.
KNOWLEDGE CHECK01 / 01

Which product is normally an OTC agreement with a provider?

VERIFY AND GO DEEPER

Primary sources

FINRA: Investment ProductsOpen source →CFTC: Futures Market BasicsOpen source →