How Does a Futures Contract Introduce Counterparty Risk?
In a traditional, non-cleared futures contract (or forward contract), both parties are exposed to the risk that the other party may default before the contract's expiration. For example, the buyer might fail to pay or the seller might fail to deliver the underlying asset.
However, most modern futures contracts are traded on exchanges and cleared through a central clearing house, which acts as the counterparty to both sides, significantly mitigating this specific risk.
Glossar
Standardization
Convergence ⎊ Standardization within cryptocurrency, options trading, and financial derivatives represents a process of reducing variability in contract specifications, valuation methodologies, and post-trade processing, ultimately enhancing market efficiency and interoperability.
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.