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What Is Netting and How Does It Reduce Counterparty Risk Exposure?

Netting offsets multiple obligations into a single net payment, significantly reducing the total notional exposure and counterparty risk.
Greeks.Live12.11.25

What Is Netting and How Does It Reduce Counterparty Risk Exposure?

Netting is the process of offsetting the value of multiple obligations between two or more parties to determine a single, net payment. Instead of exchanging the full gross value of all transactions, only the net difference is exchanged.

This significantly reduces the total notional exposure between counterparties, thereby lowering the overall counterparty risk in the event of a default.

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