A collateral arrangement the purpose of which is to mitigate counterparty risk in an OTC derivative contract such as swaps. To that end, the agreement sets forth and defines the credit support (collateral) in order to reduce the credit risk arising from in-the-money positions. It outlines the terms and conditions under which mutual collateral is put up by counterparties or transferred between them. For example, a protection seller in a credit default swap would often be required to post a proportion of the notional of the contract. If the market value of the swap tilts against the protection seller, more collateral would need to be posted.

The terms and conditions of a credit support annex (CSA) agreement mainly specify factors such as (1) threshold amount (i.e., the reference value of the marking-to-market above which one counterparty has to put up collateral), (2 ) posting frequency (both counterparties agree on the frequency of collateral postings- daily, weekly, and bi-weekly, weekly, etc), (3) eligible collateral (both counterparties negotiate which assets are worthy to be collateral. Cash and government bonds are the most common eligible assets), (4) minimum transfer amount (if the difference between the mark-to-market value and the value of the collateral position is larger than the minimum transfer amount, extra collateral needs to be posted).