How Does Counterparty Risk in Derivatives Trading Differ from Spot Trading in a CLOB?

In spot trading on a CLOB, settlement is typically immediate or within a few days, minimizing counterparty risk as the exchange's clearinghouse guarantees the trade. Derivatives, however, are contracts with obligations that extend into the future.

This creates significant counterparty risk ▴ the danger that one party will default on its contractual obligations before expiration. While central clearing mitigates this for standardized derivatives, complex, non-cleared derivatives retain direct risk between the two trading parties.