Counterparty Risk

Every contract carries the risk (for each party) that the counterparty will not live up to its contractual obligations or will default. For example, the provider may not execute the foreign currency transaction as directed. Or, once the forex transaction is executed, there is a risk of default if the provider didn't hedge out the transaction with another customer’s trade or with another forexliquidity provider.
To help manage risk, you must verify counterparty viability before placing any trade with them. For example, verify that the counterparty:
has extremely good credit has a strong capital position has risk management policies which hedge out any net forex exposures to an appropriate liquidity provider. The use of margin accounts should eliminate the counterparty’s exposure to any customer losses