(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.