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Does Cash Settlement Eliminate All Forms of Counterparty Risk?

Cash settlement reduces delivery risk but does not eliminate the risk of the central counterparty or the dealer defaulting.
Greeks.Live23.11.25

Does Cash Settlement Eliminate All Forms of Counterparty Risk?

Cash settlement significantly reduces counterparty risk, especially delivery risk, by removing the need for physical asset transfer. However, it does not eliminate the risk of the central counterparty (clearing house) defaulting, although this is highly unlikely on a regulated exchange.

In OTC markets, the counterparty risk of the dealer remains.

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