What is a counterparty in trading?

In the world of trading, what exactly is a counterparty, and how does it play a role in the process? When we talk about counterparties, are we referring to specific individuals, institutions, or both? And why is it important to understand the concept of a counterparty in the first place? As a trader, how can knowing about counterparties help me make better decisions and mitigate potential risks? Let's dive deeper into this topic and explore the intricacies of counterparty roles in trading.