An FX trade is two payments in two currencies, made in two different countries, often in two different time zones. Settlement risk is the danger that you pay away the currency you sold but never receive the currency you bought. Because you can lose the *full principal*, not just a mark-to-market move, this is the most dangerous risk in foreign exchange. It is named Herstatt risk after Bankhaus Herstatt, a Cologne bank whose licence was revoked by German regulators on 26 June 1974. Counterparties had already paid Deutsche Marks into Herstatt that morning; when New York opened hours later, Herstatt was shut and the US dollars it owed were never paid. The losses froze interbank lending and put settlement risk permanently on the regulatory agenda.