Settlement
Trading MechanicsThe process of completing a trade by exchanging the currencies involved. Spot forex settles on a T+2 basis (two business days after the trade date).
What Is Settlement in Forex?
Settlement is the final step of a trade where the actual exchange of currencies takes place. In spot forex, the standard settlement cycle is T+2, meaning settlement occurs two business days after the trade is executed. If you buy EUR/USD on Monday, the technical delivery date is Wednesday.
Settlement and Retail Trading
In practice, retail forex traders rarely deal with actual settlement. Because most retail trades are leveraged and speculative (you never intend to take physical delivery of currency), positions are automatically rolled over through the Rollover process each day. The T+2 settlement cycle is the reason Swap charges exist and why Wednesday carries triple swap (to cover the weekend).
Settlement Risk
In the interbank market, settlement risk (also called Hershatt risk) is the risk that one party delivers its currency but the other party does not. This risk is managed through CLS Bank (Continuous Linked Settlement), which handles settlement for the majority of interbank forex transactions. Retail traders do not face settlement risk directly because they trade through their broker, who handles settlement obligations.
Related Terms
Daily Cut-Off
The time each day when one trading day officially ends and the next begins. Typically 5:00 PM New York time (10:00 PM GMT). Swap charges are applied at this time.
Rollover
The process of extending the settlement date of an open forex position to the next trading day. Rollover results in a swap charge or credit based on interest rate differentials.
Realized P/L
The actual profit or loss locked in when a position is closed. Realized P/L is added to or deducted from your account balance.
Contract Size
The number of units of the base currency in one standard lot. For forex, one standard lot is always 100,000 units of the base currency.