Chapter 01 · Section 1.1

Counterparty Risk

                   Forwards             Futures

Contract Terms     variable             standard
Delivery           expected             only 2-5%
Trading            via phone            centralised
Margins            negotiated           uniform
Credit Risk        taken by
                   counterparty                  
Liquidity          ........             ........
Cash Flow          ........             ........

There is always a risk that one party to a contract be unable to fulfill his obligations. .. but who takes the risk in a futures contract?

• a) The counterpart.
  No. This is only the case with forwards. The counterpart demands guarantees to cover the risk of the default of a major debtor. With futures, the clearing house demands margins to cover this risk.
  b) The clearing house or clearing corporation.

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