A Credit Default Swap (CDS) is a financial contract that allows one party to transfer the risk of default on a loan or bond to another party. Essentially, it acts like insurance: if the borrower fails to pay back their debt, the seller of the CDS compensates the buyer for their loss. This helps investors manage risk and can make lending more secure. Investors often use CDS to protect themselves against potential losses from companies or governments that might default on their obligations. For example, if an investor holds bonds from a company like XYZ Corp, they might buy a CDS to safeguard against the risk of XYZ Corp going bankrupt.