CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What is counterparty risk?

Counterparty risk

When an agreement’s made, counterparty risk refers to the threat of the other party not meeting its financial obligations. Counterparty risk is sometimes also called default risk and credit risk, and is a threat to all parties in a contractual agreement.

Where have you heard about counterparty risk?

Counterparty risk exists to some degree in all financial transactions and is experienced by lenders and investors across the financial industry.

When you purchase stocks and bonds, for example, you’re exposed to counterparty risk. If the counterparty risk is thought to be low, insurance rates and premiums are also low.

However, it’s not uncommon for investors to purchase products with a higher counterparty risk in the hope of securing a higher return on their investment.

What you need to know about counterparty risk.

Depending on the nature of the agreement you may want to reduce your risk from the outset. This can be done in several ways such as including risk-based pricing and penalty agreements in the contract, or requesting that collateral is provided as part of the terms.

A third-party guarantor with good credit can act as an mediator between parties and underwrite any debts.

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading