---
title: What is counter-party risk?
description: Counter-party risk is the risk that the party on the other side of the trade cannot fulfill their obligations to the trade.
---

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# What is counter-party risk?

## Counter-party risk is the risk that the party on the other side of the trade cannot fulfill their obligations to the trade.

One of the key concepts of futures trading that differentiates it from other markets is the concept of novation – where the exchange becomes the counterparty on every transaction. In effect, this means the exchange is the buyer for every seller, and the seller for every buyer.

Because of novation, on-exchange futures markets are generally liquid, meaning buyers and sellers can find a ready market any time they wish to trade.

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