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Counterparty

Counterparty

Definition

Unlike insurance transactions, wherein insurers utilize their considerable leverage to assume risk, capital market transactions require a counterparty. For every seller of a marketable security, there must be a buyer, a counterparty. When risk is offloaded in the capital markets, it must be picked up by a counterparty willing to assume the risk. Because of the need for noncorrelating high-risk positions in diversified investment portfolios, risk-taking counterparties exist.

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