Counterparty

AAA

DEFINITION of 'Counterparty'

The other party that participates in a financial transaction. Every transaction must have a counterparty in order for the transaction to go through. More specifically, every buyer of an asset must be paired up with a seller that is willing to sell and vice versa.

INVESTOPEDIA EXPLAINS 'Counterparty'

All trades require some sort of counterparty. For example, the counterparty to the option buyer would be the option writer. One of the risks involved in any transaction is counterparty risk, which is the risk that the counterparty will be unable to fulfill his or her duties. However, in many financial transactions the counterparty is unknown.

RELATED TERMS
  1. Cross-Currency Settlement Risk

    A type of settlement risk in which a party involved in a foreign ...
  2. Bank Endorsement

    An endorsement by a bank for a negotiable instrument, such as ...
  3. Clearing House

    An agency or separate corporation of a futures exchange responsible ...
  4. Counterparty Risk

    The risk to each party of a contract that the counterparty will ...
  5. Default

    1. The failure to promptly pay interest or principal when due. ...
  6. Trade

    A basic economic concept that involves multiple parties participating ...
Related Articles
  1. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  2. Calculating (Small) Company Credit Risk
    Entrepreneurship

    Calculating (Small) Company Credit Risk

  3. Know Your Counterparty When Day Trading
    Trading Strategies

    Know Your Counterparty When Day Trading

  4. Futures Fundamentals
    Insurance

    Futures Fundamentals

comments powered by Disqus
Hot Definitions
  1. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  3. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center