The Term ‘Counter-party’

A counter-party is described as an entity or other party that participates in a financial transaction. In the financial world, every transaction must have at least a counter-party in order for the transaction to go through, just the same way every buyer of a commodity must interact with a seller before any transaction can be finalized.

To illustrate, in terms of financial markets, the bond seller and investor are counter-parties. Also, if you buy 1,000 shares of Nestle Nigeria Plc, then the “counter-party” in that transaction is the person (or company) that is selling you the 1,000 shares of Nestle Nigeria Plc. If buying directly from the company, then Nestle Nigeria Plc becomes the counter-party.

In certain situations, though, multiple counter-parties may exist as a transaction progresses. In the case of the Nestle stock described above, if the shares are purchased through a Stockbroker, the broker is also a counter-party to that transaction in addition to Nestle Nigeria Plc.

Each exchange of funds, goods or services in order to complete a transaction can be considered as a series of counter-parties. For example, if a buyer purchases a retail product online to be shipped to his home, the buyer and retailer are counter-parties, as are the buyer and the delivery service.

In a general sense, any time one party supplies funds, or items of value, in exchange for something from a second party, counter-parties exist. Counter-parties reflect the dual-sided nature of transactions and must therefore exist for any transaction to take place. The only variable is the number of counter-parties involved in the transaction. Therefore the term “counter-party” applies to every transaction that involves the purchase of an asset.


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