counterparty risk

**Counterparty Risk**

Counterparty risk refers to the potential that the other party in a financial transaction may fail to fulfill their obligations, leading to financial loss. This risk is common in various types of agreements, including loans, derivatives, and trading contracts. Understanding and managing counterparty risk is essential for investors, traders, and financial institutions to protect themselves from default or non-performance by the opposing party. Strategies such as credit checks, collateral requirements, and diversification are often used to mitigate this risk.