Settlement Cycle

The settlement cycle is the time period between the execution of a trade and the final exchange of assets and cash. In traditional finance, this can take several days, whereas in many cryptocurrency markets, settlement is near-instantaneous due to blockchain technology.

Efficient settlement cycles reduce counterparty risk, as the window of time where a trade is pending is minimized. Clearinghouses manage these cycles to ensure that all parties meet their obligations in a timely manner.

Shortening the settlement cycle is a primary goal for modernizing financial infrastructure, as it releases capital more quickly and reduces the systemic risk associated with unsettled trades.