The default risk of a swap contract falls somewhere between the risk of a comparable futures contract and the risk of the forward contract with the longest maturity in the bundle of forward contracts that comprises the swap.

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The default risk of a swap contract is generally considered to be lower than that of a comparable futures contract because swap contracts are traded over-the-counter and involve only two parties, whereas futures contracts are traded on exchanges and involve a central clearinghouse. However, swap contracts do have some default risk, which typically falls somewhere between the risk of a futures contract and the risk of the forward contract with the longest maturity in the bundle of forward contracts underlying the swap.

The Default Risk of a Swap Contract Falls Somewhere Between