Why not? it's a contract, just like a mortgage is a contract, the obligations and benefits on either go to the holder of the contract. Let's say you wanted to buy a CDS to protect your mortgage portfolio. You get a quote from Goldman Sachs and a quote from Joe's Discount CDS Shack. Joe will give you a better deal, but he only has $10,000 in capital and has only been in business since March. You decide to go with Goldman. 6 months later, Goldman gets bearish on your portfolio, decides to trade your contract to Joe. Should you be worried? A contract is a contract. Yeah and? what makes you think that risk is calculated by counting the number of contracts one has on one's books? Who said it was? In my scenario, does Merrill have zero risk? Why? Don't confuse these contracts with exchange traded options and futures. I'm not but it appears that you are since you're the one that's claiming that CDS aren't tradeable Only because the 2 party contracts aren't. which leads one to conclude that you think that trades only occur on public exchanges. If you want a CDS contract that is standardized, nettable and tradable, like a futures or options contract on an exchange, you'd have to find one on an exchange with a clearing corporation. AFAIK, there are none currently available. It's only fairly recently that CDS contracts have been nettable between the 2 original parties.