Counterparty Risk: Definition and Services

What is counterparty risk and how are businesses, vendors, sellers and individuals getting affected from it? When it comes to signing deals and contracts, it is already a party of the deal that there are risks involved. No matter how clear the contract may be, there are certain parties who cannot follow the contract, leaving the other party at risk and disadvantaged.

There are contractual obligations that we have to always remember – but no matter how much you wanted to follow these obligations, if the other party doesn’t participate, how will you benefit from it and what are the different things that you can do to avoid taking all of these risks?

Because counterparty risk is very common amongst real estate trades, business deals and transactions, buying shares and mergers, there are now different services that can counter all of these risks involved. However, before you even consider finding a service, one must greatly understand that no matter what type of contract it may be, both parties are still at risk.

Both parties should be talking about the possible things that can happen if one or more contractual obligations have not been followed. It is your responsibility to evaluate these types of situations, and think of certain penalties or consequences if one or more of the contractual obligations have not been followed.

Some other companies or establishments also coin counterparty risk as a default risk. As mentioned earlier, there are risks involved regardless of what type of transaction is to be made. To ensure that these risks can be minimized, there are services that you can go for, which can determine and evaluate which of these risks are most likely to happen, and give you an idea on what you need to do just in case worse things comes to worst.

The internet is a perfect place to look for information about counterparty risk and the available services that you need. At first, you might find it a bit confusing and overwhelming, while looking at all the different results that are being posted all over the internet. But the secret lies in finding the right professional in keeping you informed at all times. Regardless of how many companies and professionals there are, if you take your time in finding these people, you can easily have them evaluate on what the default risks are, so that both parties involved can further discuss these issues before even making an agreement.

When it comes to signing a contract, it is not enough that you discuss the duties and obligations, terms and conditions and the effective date of the contract. It is even more important that you both secure your rights and discuss what the counterparty risk may be, and learn the right things that you can do to deal with it, just in case these things happen. If you have just made a deal without even considering the risks involved, it may be difficult for both parties to come up with a decision if one of these things have not been followed. But with the help of default risk services, you will be able to know what to do next, before it has even occurred.


07 October 2012