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How Can a Business Mitigate the Counterparty Risk in a Forward Contract?

By dealing with creditworthy parties, requiring collateral, or by substituting the forward with an exchange-traded futures contract.
Greeks.Live05.11.25

How Can a Business Mitigate the Counterparty Risk in a Forward Contract?

A business can mitigate counterparty risk by dealing only with highly creditworthy financial institutions, demanding collateral, or using credit enhancements like letters of credit. Alternatively, they can use exchange-traded futures contracts, which are guaranteed by a central clearing counterparty (CCP).

How Does Collateralization Mitigate OTC Counterparty Risk?
What Is the Key Difference between a Forward Contract and a Futures Contract?
Can Margin Calls Occur in OTC Forward Contracts?
Are There Any Examples of Standardized Forward-like Contracts in the Crypto Space?

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