Investopedia

Continue to Site »

Settlement Risk

Filed Under » ,
Dictionary Says

Definition of 'Settlement Risk'

The risk that one party will fail to deliver the terms of a contract with another party at the time of settlement. Settlement risk can be the risk associated with default at settlement and any timing differences in settlement between the two parties. This type of risk can lead to principal risk.
Investopedia Says

Investopedia explains 'Settlement Risk'

Settlement risk is the possibility your counter party will never pay you. Settlement risk was a problem in the forex market up until the creation of continuously linked settlement (CLS), which is facilitated by CLS Bank International, which eliminates time differences in settlement, providing a safer forex market.

Settlement risk is sometimes called "Herstatt risk", named after the well-known failure of the German bank Herstatt. On Jun 26, 1974, the bank had taken in its foreign-currency receipts in Europe, but had not made any of its U.S. dollar payments when German banking regulators closed the bank down, leaving counter parties with the substantial losses.

Articles Of Interest

  1.

    Getting Started In Forex

    Before entering this market, you should define what you need from your broker and from your strategy.

  2. A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.

  3. The Fundamentals Of Forex Fundamentals

    Charting is not the only way to analyze the foreign-exchange market. Learn how to apply fundamental analysis to the economic indicators.

  4. Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.

  5. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.

  6. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  7. Exploring Non-Dollar Currencies For Forex Trading

    Learn how investments in foreign currencies can diversify your portfolio.

  8. Candlestick Charting: What Is It?

    Discover the components and basic patterns of this ancient technical analysis technique.

  9. Financial Solutions For Young Women

    Break through the stereotypes and find out how to manage your life to meet your needs.

  10. Open Interest

    Learn more about this commonly used term found in a stock's option chain.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  2. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  3. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  4. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  5. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  6. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
Trading Center