What Is the Role of the Counterparty in an Over-The-Counter (OTC) Derivatives Trade?
In an Over-The-Counter (OTC) trade, the counterparty is the other party to the transaction, typically a large financial institution or a dedicated OTC desk. Unlike exchange-traded derivatives, the counterparty directly guarantees the fulfillment of the contract.
This introduces counterparty risk, the risk that the other party may default on their obligation.
