Does Cash Settlement Eliminate Counterparty Risk in Futures Trading?

No, cash settlement does not eliminate counterparty risk entirely, but it significantly mitigates it. The primary mechanism that reduces counterparty risk is the clearinghouse.

The clearinghouse acts as the buyer to every seller and the seller to every buyer, guaranteeing the trade. Cash settlement simplifies the process by avoiding the physical transfer risk, but the clearinghouse's financial integrity remains the ultimate safeguard.