Why Is Counterparty Risk Lower in Exchange-Traded Futures?

Counterparty risk is significantly lower in exchange-traded futures because a clearinghouse acts as the central counterparty (CCP) for every transaction. The CCP guarantees the performance of the contract, effectively replacing the individual counterparty's credit risk with its own, highly reliable credit.

This mechanism, supported by margin requirements and daily settlement, centralizes and manages the risk, making the chance of default extremely low for the individual trader.