(FINANCE) for a financial instrument, the person/institution who takes the opposite position. For example, in a
credit default swap (CDS), the
buyer is someone who needs insurance against the possibility that a
borrower will default on a loan. In that case, the counterparty is whoever receives the CDS premiums, and pays out in the event of default.
The purpose of financial options is to minimize risk to the
buyer; therefore, it creates potentially
lucrative opportunities for the counterparty, because the counterparty takes
on so much risk.
