Controlling credit risk in bilateral trading is a vital obligation for financial institutions. Unlike listed instruments where central counterparties act as middlemen and guarantee transactions, over-the-counter markets involve private arrangements between two parties. This means each participant bears the potential loss that the opposing party may default. To manage credit danger, participants employ a combination of credit assessments, margin requirements, exposure netting, and real-time tracking.

One of the first steps in managing counterparty risk is conducting thorough credit analysis. Firms evaluate the solvency position, تریدینیگ پروفسور credit history, and capability of their counterparties to honor agreements. This includes analyzing audited reports, external credit opinions, and public perception. Frequent reassessments to these assessments are necessary as financial conditions can shift overnight.

Collateral management is another critical control. Many OTC contracts require counterparties to post collateral, often in the form of cash or high-quality securities. This security is intended to cover potential losses if one side becomes insolvent. The value of collateral is typically adjusted based on the mark-to-market price of the contract—a process known as MTM. This helps cap risk at pre-defined thresholds even as volatility increases.

Offsetting arrangements also play a key role. When two parties have multiple contracts with each other, they can consolidate gains and losses across those contracts. This reduces total exposure and consolidates obligations. For example, if one party has a liability of $10M on one trade but is is entitled to $7M on another, a net settlement mechanism enables to clear only the $3M gap.

Beyond these measures, institutions often establish risk thresholds based on the rating grade of each counterparty. These limits cap the aggregate exposure a firm is willing to take on with any counterparty. Periodic reviews and stress testing help ensure these limits are not exceeded and that the exposure profile stays stable under market shocks.

Technology also supports risk management by initiating security requests, tracking risk continuously, and identifying early warning signs before they become critical. Many firms use integrated risk platforms that unify credit profiles, real-time valuations, and legal agreements into a unified dashboard for enhanced visibility.

Finally, legal documentation is the cornerstone. Master documentation such as those provided by the ISDA help establish clear expectations with clarity. These documents include clauses covering credit events, contract cancellation rights, and margin triggers, which reduce ambiguity and provide a framework for resolution if problems arise.

Controlling exposure in OTC trading is not a one-off exercise but an ongoing process. It requires constant attention, robust infrastructure, and effective coordination between counterparties and ops teams. By applying rigorous analysis with strong governance, institutions can reduce the likelihood and impact of defaults and ensure resilience in an inherently complex market environment.