Counterparty
A counterparty is the other party to a contract or transaction — the person or entity on the opposite side of the agreement from you. Each side of a two-party contract is the other's counterparty, and counterparty risk is the chance the other side fails to perform.
What it means
In any agreement, the counterparty is whoever sits across the table: the buyer to a seller, the lender to a borrower, the client to a provider. The term is common in finance and commercial contracts, where "counterparty risk" refers to the danger that the other side defaults on its obligations. Sound contracts manage counterparty risk through due diligence, representations and warranties, security, guaranties, and remedies for breach.
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