What Is the Difference between a Bilateral Trade and a Cleared Trade in Derivatives? ▴ Learn

What Is the Difference between a Bilateral Trade and a Cleared Trade in Derivatives?

A bilateral trade is executed directly between two parties without an intermediary, meaning each party bears the full counterparty risk of the other. A cleared trade involves a Central Counterparty (CCP) stepping in as the legal counterparty to both sides of the trade.

The CCP guarantees the performance of the trade, effectively mutualizing and significantly reducing counterparty risk for the original parties.

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