What does settlement mean in trading, and how does it work?

What does settlement mean in trading, and how does it work? (T+1, Rolling, and ‘X’ Settlement Explained)

In trading, settlement refers to the process of completing a transaction by transferring securities from the seller to the buyer and funds from the buyer to the seller. Settlement ensures that every trade is finalized accurately and within a defined time frame. It can occur through regular delivery of shares, through a rolling T+1 cycle, or in rare cases through a cash adjustment called 'X' settlement.

Understanding Settlement Cycles

The settlement cycle defines when securities and funds are exchanged after a trade. The standard Indian equity market follows a T+1 rolling settlement cycle.

  • T = Trade date (the day the order is executed)
  • +1 = Settlement day (the next trading day when the exchange of funds and securities occurs)

That means if you buy shares on Monday, they are credited to your Demat account on Tuesday, while funds from a sale are also credited on Tuesday.

Rolling Settlement

Rolling settlement means trades executed on each trading day are settled independently of other days. Every trading day “rolls” into its own T+1 cycle. This ensures predictable and efficient trade completion.

How it works:

  • Each day’s trades are cleared separately by the exchange clearing corporation.
  • Buyers receive securities and sellers receive funds on the next trading day (T+1).
  • Weekends and exchange holidays are excluded from settlement calculations.

Example:

  • You buy shares on Monday (T). They are delivered to your Demat account on Tuesday (T+1).
  • If Tuesday is a holiday, settlement happens on Wednesday.

T+1 and T+2 Settlement Explained

Until January 2023, Indian markets followed a T+2 settlement cycle. From 27th January 2023 onward, all listed equities in India follow T+1 settlement, as per SEBI’s circular. This means faster delivery of shares and funds for investors.

  • Buyers receive shares in their Demat account by the end of the next trading day.
  • Sellers receive sale proceeds by the next trading day.
  • Holidays and weekends are not counted in settlement days.

Example:

  • Buy on Friday → shares are delivered on Monday (assuming no holiday).
  • Sell on Wednesday → funds credited on Thursday.

Why T+1 settlement matters

  • Enables faster liquidity and reduces counterparty risk.
  • Improves market efficiency by shortening the cash-to-securities cycle.
  • Protects investors from delays caused by non-delivery or trade mismatches.

‘X’ Settlement (Cash Settlement)

In rare cases where physical share delivery cannot take place, a cash settlement—also known as ‘X’ settlement—is used. Here, instead of delivering shares, the buyer receives a monetary equivalent of the transaction’s value.

How it works:

  • Normally, trades are settled on T+1 day when shares are credited to the buyer’s Demat account.
  • If delivery fails (for instance, due to seller default or dematerialization issues), the exchange compensates the buyer through cash payout.
  • This ensures the buyer is not left uncompensated for undelivered shares.

Internal Settlement

  • When both buyer and seller trade through the same broker (e.g., FYERS), internal share transfer may occur without exchange involvement.
  • Example:
    • Mr. X sells 20 shares of ABC Ltd.
    • Mr. Y and Mr. Z (both FYERS clients) buy 10 shares each.
    • FYERS internally settles these shares directly between clients.

Cash Settlement Example

  • Ms. L buys 10 shares of MRF Ltd.
  • If the shares fail to deliver on T+1 and no internal match exists, FYERS initiates a cash settlement.
  • Ms. L receives the cash value of those shares instead of the shares themselves.
Tip: Cash settlement is rare and only used when delivery fails. Always verify settlement status under “Holdings” in your FYERS account before initiating a new trade.

What If...

ScenarioOutcome
I sell shares before they’re settled in my accountThis can lead to short delivery. Wait until T+1 settlement is complete before selling newly bought shares.
T+1 is a holidaySettlement moves to the next working day (T+2).
My shares aren’t deliveredYou may receive a cash settlement instead of physical delivery.
I don’t see shares in my Demat accountCheck the trade status or cash credit entry under settlement transactions.
I need an official referenceRefer to our notice: Change in Settlement Cycle.
Important: All equity trades in India follow SEBI’s T+1 rolling settlement cycle. Cash (X) settlements occur only in exceptional delivery failure cases. FYERS automatically manages these adjustments per exchange guidelines—no user action is required.

Last updated: 03 Nov 2025