What does 'X' settlement or cash settlement mean in trading?
In the trading world, “settlement” refers to the process of transferring securities from seller to buyer after a trade. Most trades settle with the delivery of actual shares. But in some cases, such as failure of delivery, an 'X' or cash settlement may occur instead.
What is 'X' settlement?
Also known as cash settlement, this occurs when the actual delivery of securities is not possible. Instead of receiving the shares, the buyer is compensated in cash equivalent to the value of the undelivered shares.
How it works
- The standard settlement cycle (T+1) expects shares to be delivered to the buyer’s Demat account the next trading day
- If delivery fails, and internal adjustment isn’t feasible, cash is paid to the buyer as compensation
Internal settlement
- When a buyer and a seller are both clients of the same broker, internal transfer of shares is possible
Example:
- Mr. X sells 21 shares of HDFC Ltd.
- Mr. Y buys 17, and Mr. Z buys 4
- FYERS internally settles Mr. X’s shares to Mr. Y and Mr. Z
Cash settlement example
- Ms. L buys 20 shares of MRF Ltd. on FYERS
- If the shares are not delivered to her on T+1 day and there’s no internal match
- FYERS initiates a cash settlement, paying her the value of the shares instead of delivering them
Cash settlement only occurs in rare delivery failure scenarios. It ensures the buyer isn’t left uncompensated when shares aren’t received.
What if...
| Scenario | Outcome |
|---|
| My shares aren’t delivered by T+1 | You may receive cash settlement instead. |
| Internal settlement is possible | FYERS transfers the shares directly without exchange involvement. |
| I don’t see shares in my Demat account | Check for messages or compensation under cash settlement. |
Last updated: 24 Jun 2025
Related Articles
What does T+2 settlement mean?
Settlement timelines define when your securities and funds actually exchange hands after a trade. If you're new to trading, understanding what "T+2" or "T+1" means can help you manage expectations, avoid short deliveries, and plan your trades better. ...
Does MTM settlement apply to options trading?
No, the Mark to Market (MTM) settlement process does not apply to options contracts. MTM settlement is a mechanism used for futures contracts, where the daily gains and losses are calculated and settled based on the market price of the underlying ...
How does the End of Day (EOD) Mark-to-Market (MTM) settlement process work in futures trading?
The End of Day (EOD) Mark-to-Market (MTM) process is a key mechanism in futures trading that adjusts a trader’s ledger based on daily price movements of their open positions. It ensures all gains and losses are reflected on a day-to-day basis. How ...
What is rolling settlement?
Rolling settlement is the standard mechanism used in Indian stock markets to finalize trades. It ensures that each trade is settled systematically, with payments and securities exchanged within a predictable time frame. Understanding Rolling ...
What does latency mean in trading?
In trading, latency refers to the time delay between when an order is placed by a trader and when it is received and executed at the exchange. Even a slight delay can cause the order to be filled at a different price than expected, particularly in ...