What Is A Forex Clearing?

What Is A Clearing?  A clearing is the completion of a Forex currency market trade transaction.  In the stock market there are buyers, sellers, brokerage firms, automated systems, and more to process trade orders while the markets are open.  In the Forex currency market there exists a similar system however the efficiency must be increased to compensate for the market’s characteristics:


24 hour, 5 day-a-week trading cycle

High volume trades

100% liquid assets which change in value against other currency assets in rapid succession

International clients using systems in foreign languages

Forex Clearing Companies

Forex clearing is therefore extremely important in the Forex Currency Market.  In a clearing, a market maker, a broker or bank who is both selling and buying opposing currencies in pairs, must execute a trade and collect monies as fast as possible.  The inability to conduct Forex clearing in quick succession means the potential loss of a lot of money.  For example if a market maker accepts a best bid order for:

EUR/USD  1.2667

And a best ask order for:

EUR/USD  1.2669

The clearing company stands to make profit from the 2 pips in spread between the two prices.  The problem with market makers is that the sale must be executed and off the counter as soon as the currency sale match occurs.  Just a moment’s change in price can not only eliminate the profit on the transaction, it could effectively flip the transaction into a loss for the market marker or clearing company.  It is for this reason that many institutions exist solely as clearing companies, executing trades and verifying their termination.  While a market maker can perform this service themselves, it can typically be handled more profitably by a professional closer: a clearing company in the Forex currency market.

Related posts:

1. What Is A Forex Currency Broker?
2. Forex Trading Pip
3. What Is A Transaction Cost?
4. What Is A Forex Confirmation?
5. What Is A Market Maker?