Counterparty

In any financial contract, the persons or institutions entering the contract on the opposite sides of the transaction are called the counterparties.

For example, if you sign a contract to sell an item that you produce to a buyer, you and the buyer are counterparties to the contract.

Similarly, the counterparties in financial transactions, known as forwards or swaps, are the banks or corporations that make deals between themselves to protect future cash flows or currency values.

For any given transaction, there must be at least two parties to the transaction – a party and a counterparty. For a transaction with a centralized exchange, the exchange is often referred to as the central counterparty.