What Is the Primary Difference between “Bilateral Netting” and “Multilateral Netting”?
Bilateral netting is an agreement between two counterparties to offset all their outstanding obligations with each other, resulting in a single net payment. Multilateral netting involves three or more parties who offset their obligations through a central entity, such as a clearing house or a Central Counterparty (CCP).
Multilateral netting is more efficient and provides greater systemic risk reduction than bilateral netting.
Glossar
Bilateral Netting
Framework ⎊ Bilateral netting, within the context of cryptocurrency derivatives, options trading, and broader financial derivatives, represents a procedural optimization of counterparty credit risk.
Multilateral Netting
Framework ⎊ Multilateral netting, within the context of cryptocurrency derivatives, options trading, and broader financial derivatives, represents a sophisticated risk mitigation technique facilitating the simultaneous exchange of multiple obligations between counterparties.
Netting
Calculation ⎊ This is the mathematical process of offsetting mutual obligations between two counterparties across a portfolio of derivative contracts to determine a single net liability or asset position.