(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.