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Exchange ensure the traders counter party risk through broker. For brokers to get registered, they need to pay some caution deposit. While trading it is the broker’s responsibility to ensure that the concerned party has enough cash/shares in their account before placing the order. If any counter party fails to make the promise, the exchange will complete the deal by taking the money from caution deposit made by the concerned broker.
Traders are connected to the stock exchange through stock brokers. If a trader defaults on his commitment then the stock market is held responsible. The stock market settles the deal in place of the defaulting trader. In turn it takes the money from the security deposit of the stock broker, who in turn take the money from the defaulter’s account.
<span style=”color: #777777; font-family: ‘Roboto Slab’; font-size: 13px;”>In order to ensure the counter party risk, the traders are connected to the stock exchange only through registered/ certified brokers</span>
There will be an intermediary person called broker between both the buyers and sellers. If any of the counter party not paying the amount the exchange will take the amount from the caution deposit given by the broker and settles the party
The exchanges ensure traders counter party risk by getting a caution deposit from the intermediary stock broker.
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