Exchange of Futures for Cash

Exchange of Futures for Cash

A method by which opposite parties of a futures contract that has underlying cash commodities aim to close out their positions simultaneously. Also know as exchange for physicals (EFP).

Notes:

This process is similar to a swap and can be completed in two ways:

1. Through a transfer of a corresponding quantity of long futures contracts from the buyer of the commodity to the seller.

2. Through a transfer of a corresponding quantity of short futures contracts from the seller of the commodity to the buyer.

In both instances, the transfer of the futures contracts must be done at a price that is mutually agreed upon.

See also: Cash Commodity, Futures Contract, Long, Short, Swap, Underlying