Counterparty Risk

Counterparty risk is the possibility that an institution, issuer, venue, custodian, or contract party will fail to perform an obligation when due.

The exposure can arise from cash deposits, derivatives, unsettled trades, custody arrangements, lending, or a platform’s dependence on external service providers. Collateral, segregation, clearing, capital requirements, and diversification can reduce certain forms of risk but cannot eliminate every failure scenario. Users should understand which legal entity owes the obligation, how assets are held, and what protections apply if that entity becomes insolvent.