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Finance Dictionary and Glossary of Investment Terms
The risk to each party of a contract that the counterparty will not live up to their contractual obligations.
The risk that the other party in an agreement will default. In an option contract, the risk to the option buyer that the writer will not buy or sell the underlying as agreed. In general, counterparty risk can be reduced by having an organization with extremely good credit act as an intermediary between the two parties.