Bilateral Derivatives Contracts are financial agreements negotiated and executed directly between two distinct parties, bypassing a central exchange or clearinghouse. Their primary purpose is to allow for customized risk transfer and exposure management tailored to specific requirements in over-the-counter (OTC) crypto markets, encompassing instruments like options and futures. This direct engagement provides flexibility not found in standardized exchange products.
Mechanism
The operational logic involves direct negotiation of all contract terms, including underlying assets, strike prices, expiration dates, and collateral requirements, between the two entities. The architecture is typically supported by robust legal agreements that define rights and obligations, and increasingly, by smart contracts that automate certain aspects of execution and collateral management. Parties establish direct credit lines and manage margin requirements.
Methodology
The strategic approach centers on OTC trading for specialized needs, customized hedging against specific market exposures, and direct counterparty risk assessment. Governing principles prioritize contractual flexibility, direct engagement between entities, and private allocation of financial risks. This framework applies financial engineering, contract law, and credit risk management principles within both traditional and decentralized financial contexts.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
