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A counterparty in trading refers to the other party involved in a financial transaction. This can be an individual, a company, a financial institution, or even a government. In any trade, there are two counterparties, each taking the opposite side of the transaction. For example, for every buyer of a security, there must be a seller selling the security, and vice versa.
Counterparty risk refers to the risk that one party in a financial transaction will default or fail to fulfil their contractual obligations, leaving the other party with an incomplete transaction or a loss. This risk is particularly important in over-the-counter (OTC) transactions, where there is no intermediary or central clearinghouse to facilitate transactions, and parties deal directly with each other.
Counterparty risk cannot be eliminated when trading between parties, but it can be managed.
Perform due diligence: Traders that do thorough research and assess their counterparty’s creditworthiness and reputation before opening a trade can minimise counterparty risk.
Use collateral: Traders can require their counterparty to post collateral in the form of cash, securities, or other assets when making a trade. This can lower the chances of a counterparty defaulting.
Use a clearinghouse: Clearinghouses act as intermediaries between parties in a transaction, and they shoulder the counterparty risk for both sides.
Diversify your counterparties: Traders placing multiple trades can also spread out their counterparty risk by trading with multiple buyers and sellers instead of just one.
ADSS offers a range of global markets for traders, with opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
ADSS
8th floor, CI Tower
Corniche Road
PO Box 93894
Abu Dhabi
United Arab Emirates
Trading Services
ts@adss.com
+971 2 657 2414
Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities LLC – S.P.C (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates under First Category: Dealing in Securities and Fifth category: Arrangement and advice (Introduction). ADSS is a Limited Liability Company – Sole Proprietorship Company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
