Editing Openai/68ed2ed1-5644-8004-ba30-42213bf3dbfa (section)

==== a. Netting ====
Most big derivatives dealers offset positions with each other.
Example:
* JPM owes Citi $10 million on one swap.
* Citi owes JPM $9 million on another. Only $1 million moves. Across the system, this slashes theoretical exposure by 80–95%.

b. Collateral / Margin
Counterparties post collateral daily (cash, Treasuries, etc.) to cover mark-to-market losses.
So if assets plunge, collateral calls go out long before “everything” goes to zero.
The danger isn’t the price drop itself—it’s who can’t meet the margin call.

c. Counterparty risk & contagion
When one player defaults, the others eat losses and confidence evaporates.
That’s what happened in 2008: a small slice of the mortgage-derivative world detonated, but leverage and mistrust froze credit globally.