In one of his annual letters to shareholders of Berkshire Hathaway, Warren Buffett wrote that trading derivatives

Question:

In one of his annual letters to shareholders of Berkshire Hathaway, Warren Buffett wrote that trading derivatives has much more counterparty risk than does trading stocks or bonds because “a normal stock trade is completed in a few days with one party getting its cash, the other its securities. Counterparty risk therefore quickly disappears.”
a. What is counterparty risk?
b. Why is counterparty risk greater for trading in derivatives than for trading in stocks and bonds?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...