Counterparty Risk: Definition, Meaning & Use in Investing

Counterparty risk is the risk that the other party in a financial transaction may not fulfill their obligations.

Counterparty risk arises in any financial transaction where one party may default on its obligations, leaving the other party exposed to potential losses. This is particularly important in derivatives trading, hedge funds, and private equity investments. Effective risk management strategies aim to mitigate counterparty risk through thorough due diligence, diversification, and establishing secure contractual agreements.

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Investing in alternative strategies involves risk. Past performance is not indicative of future results. The value of investments can go down as well as up, and you may not get back the amount originally invested. These opportunities are intended for sophisticated or qualified investors who understand the risks involved. Please seek independent financial advice before making any investment decisions.

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Counterparty Risk

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