Counterparty risk
The risk that the other side of a trade fails to perform: the security is not delivered, variation margin is not paid, a borrowed asset is not returned.
How to read the number
On exchange it is absorbed by the central counterparty, so a participant is exposed to the clearing house rather than to an unknown trader. In an over-the-counter deal it stays personal.
When the metric lies
Also known as: settlement counterparty risk