Counterparty

A counterparty refers to the other party in a financial, goods, or services transaction. A counterparty includes individuals, businesses, governments, or nonprofit organizations involved in a trade or transaction. In any instance where an exchange agreement, general contract, forward contract, futures contract, options contract, or other type of contract is created or met, the involved parties are counterparties to one another. The inclusion of a counterparty in an agreement or transaction introduces counterparty risk, the risk that a counterparty will be unable to fulfill their transactional obligation. In most instances of exchange trading, the counterparties are anonymous to one another and there are often multiple counterparties in a given transaction. Market makers, liquidity traders, technical traders, and arbitrageurs are considered counterparties in financial transactions.