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  2. Trading Glossary
  3. Counterparty Risk

Counterparty Risk

Counterparty risk is the possibility that an institution, issuer, venue, custodian, or contract party will fail to perform an obligation when due.

Defined termReviewed 16 July 2026

Related terms

Centralized Exchange (CEX)BrokerCustodySettlementForeign Exchange (Forex)Liquidity

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure
Trading glossaryReviewed 16 July 2026

Definition

Counterparty risk is the possibility that an institution, issuer, venue, custodian, or contract party will fail to perform an obligation when due.

In market context

The exposure can arise from cash deposits, derivatives, unsettled trades, custody arrangements, lending, or a platform’s dependence on external service providers. Collateral, segregation, clearing, capital requirements, and diversification can reduce certain forms of risk but cannot eliminate every failure scenario. Users should understand which legal entity owes the obligation, how assets are held, and what protections apply if that entity becomes insolvent.

Source

Use the primary source for fuller regulatory or market context.

CFTC Glossary

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure

Related glossary terms

Selected from explicit term relationships and shared tags.

beginner3 min

Centralized Exchange (CEX)

A centralized exchange is a trading venue operated by an organization that controls account access, order matching, custody arrangements, or settlement processes.

crypto · marketsRead guide
beginner3 min

Broker

A broker is a regulated intermediary that receives or executes customer transactions in financial instruments and may provide custody or related account services.

markets · executionRead guide
beginner3 min

Custody

Custody is the safeguarding and administration of assets or the credentials controlling them on behalf of an owner or account holder.

custody · securityRead guide
beginner3 min

Settlement

Settlement is the process that completes a transaction’s contractual exchange of money, assets, or ledger entitlements after execution or approval.

execution · transfersRead guide