DEFINITION of 'Credit Checking'

A check performed on the financial backing of the counterparties in a forex transaction. This credit check ensures that both parties have the means necessary to cover their leveraged positions in the trade and is done before the transaction takes place.

BREAKING DOWN 'Credit Checking'

Without the process of credit checking, one party in a forex transaction would have no assurances as to the creditworthiness of the other party involved. By engaging in credit checking before transactions take place, confidence is maintained that each party has enough credit to carry out and honor the transaction.

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