A counterparty is the other party that participates in a financial transaction, and every transaction must have a counterparty in order for the transaction to go through. More specifically, every buyer of an asset must be paired up with a seller who is willing to sell and vice versa. For example, the counterparty to an option buyer would be an option writer. For any complete trade, several counterparties may be involved (for instance a buy of 1,000 shares is filled by ten sellers of 100 shares each).
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