[xorcist]

Yes, so I take it to mean that indeed the retail trading platform (the actual term may be something else), takes zero financial risk. The broker that the retail trading platform uses to access the trading exchange takes this risk.

But the counterparty risk here is quantifiable (by way of audits of said retail trading platform) which usually in society makes it a case for insurance, not security payments. That is my question. Is the premise misstated, and if not, why is this not settled by insurance?

The three replies posted to the question above seems to disagree what the problem actually was.

[bdonlan]

In the financial industry collateral is normally used as the primary means of mitigating counterparty risk as it avoids adding an additional counterparty that you then have to evaluate for creditworthiness, and you have to pay them money instead of just temporarily handing over collateral and getting it back 100% later on.

That being said the collateral doubles as a sort of insurance; if one party's collateral is insufficient to cover the loss, the excess is spread across other market participants. This is one reason why client funds can't be used for this collateral.