This article is to help illustrate the sort of function and role that ‘Clearing and settlement’ have in a business setting. More so to help set up a primer to talk more degeneracy about the stonk markets and financial logistics. So this is a primer.
Simp-le enough of a question, let’s go dive into the world of Not-Trusting-People.
You see, you got to ‘clear’ the goods and make sure the goods are ‘settled’ in your inventory, hands, property, or accounts.
Basically, we’re going to use a metaphor, called a Drug Deal.
So In a Drug Deal
You have someone selling Drugs for money.
And you have someone selling Money for Drugs.
Everything is sales, and that’s why everyone is trying to make the ‘hard’ sell. Which means selling their side a little higher.
So the Drug seller wants more money.
And the Money seller wants more drugs.
When they negotiate and haggle with each other, they may both agree to an offer. That’s when you have a deal. But Agreeing to it and executing it, are two different things. Words are one thing, actions are another.
Once you have a deal, you exchange goods;
So another question does come to mind when it’s about the money or the drugs;
It’s a question of Trust.
If you’re selling the drugs, how do you know if the money is real and all there and accounted for?
If you’re selling the money, how do you know if the drugs are quality and all there and accounted for?
This is where Clearing comes in.
Checking the goods and making sure it ‘checks out’. Is it ‘clear’ or ‘good to go’?
Basically testing to make sure the product is kosher, safe, or what it is intended to be. Authentic.
Like, do you even know how to count the money?
This is the part in the drug deal where you actually count the money or test the product. Just like how they sniffed the Afghani Heroine or made it rain to count the money above.
Clearing can simply be broken down to a Russian proverb;
“Trust, but Verify”
-I literally said it’s a Russian Proverb
The exchange of goods and letting it exchange hands. Letting people feel ‘stable’ about the transaction and allow the transaction to fully execute. And then having it ‘settle’ in each other’s respective hold/possession/inventory. That’s what settlement is.
Now, in a drug deal, you check the goods but it’s not really yours until you drive away with the goods and it gets counted, accounted, and inventoried in your logistics safe house. But that’s mob talk, and I’m not here to tell you how mafia works.
You see, you can still get betrayed even with the goods.
You might still be duped even with the goods.
Hell, like a naked short sale, the assholes that you traded with could fail to deliver, and instead hand you some synthetic I.O.U’s.
All I’m saying is, when it comes to Settlement;
“Don’t count your Chickens before they hatch”
-Aesop or some other Dead Hellenic person
So from start to finish
Trade goes something like this,
- An offer is placed and is met on the other side, a bid meets an ask, a buyer meets a seller.
- They get together to negotiate on price and trade.
- They strike a deal.
- They exchange goods.
- They check goods. <– CLEARING
- They take goods home and let it all settle. <– SETTLING
In Banking, stocks, and financial logistics, this happens all when you try to transfer money between accounts, transfer securities or equities between accounts, transfer things between markets, even swiping your credit card and balancing that ledger. Cash has to clear, and has to settle.
You think Credit Cards just magically have a money in them? Turns out, they have to communicate with space and back. So give it a fucking second, eh?
It takes time for a wire transfer or a movement of equities to happen. That time is called settling or settlement time.
For Stonks, it goes T+X (X being 2 or 5 or any number) of days.
For all else, I stopped caring. So moving on,
It’s also to note,
That Businesses can provide clearing and settlement.
So instead of this bullshit;
You can upgrade to have a third party ‘clear the trades’.
Clearing Houses, are sort of third party insurance companies that sell you Trust for your money to help clear a trade or transaction. An Auction house or the Market Hub would be an example of this. You may not trust the stranger buying your shit, so you pay a little tax or vig to the House to ensure that the trade goes smooth.
If the trade goes south because the stranger you are trading with is a dipshit and books it or something, then the house recompenses you and eats up the cost, and fucks over the little guy to have them pay up those costs.
So you don’t have to trust strangers, just the house. This is a boon for making trades happen faster. Because you are sooner to trust a house that you build history, rapport, and credit with, then every random fucking stranger you buy from or sell to.
So instead of selling shit off some dark corner, you can sell shit on places like Etsy, Ebay, or Amazon or insert generic marketplace.
In terms of settlement,
We also call this ‘delivery’ or ‘fulfillment’. There are tons of couriers that have jobs to deliver your shit. If the couriers fail, then someone is held responsible.
Ironically a lot of the workers that work in fulfillment, have none. Lmao.
So Delivery hubs and Fulfillment centers, and the like, keep in communication with you and the couriers to ensure that the settlements happen. Even if it means having the couriers skip their lunches or piss in bottles. All to YEET your package over a fence or in to the wood lines.
It’s basically Delivery, definitely not DiGiorno.
Like Planet express;
All of this ‘trade’ stuff requires a bit of trust.
You need to trust that this deal is worth doing, factoring the risks that the other party might scam you or rip you off.
You need to trust in your abilities.
You need to trust your goods are good.
You need to trust your ability to understand and clear their goods.
You need to trust the delivery method.
You need to trust valuations and price.
You need to trust where you guys are gunna meet.
All sorts of things all hinge on trust.
That’s what makes a deal work, the level of trust. This helps get a win-win trade going.
Although, over trusting someone that plans to betray you, well, that’s a one sided trade. A win-lose trade.
Now you sort of understand the general jist of Clearing and settlement. That’s good, we can build on that. You know, to help load you with more misinformation, yellow journalism, shit-takes that are shit hot, and miseducating-ly indoctrinate you into a cult. It’ll be fun!
And you may notice how I put a lot of emphasis on trust.
That’s key in society. Trust is a form of belief, because it takes a degree of faith. What are you, a non-believer? I don’t have time to go all metaphysical on your ass today, soooo-
Anyways, time to lose your money by trusting it all in black at the nearest roulette wheel, Just make sure it’s not Russian, they play by a sort of different set of rules. Unless you want to play it American style, use a Semi-auto and it’ll do you wonders. Like I wonder when’s the funeral?
No Safe Bets after all, might as well bet on it.
*Not Valid Financial, Legal, Life, Drug Solicitation, Roulette, or Any Advice