Exchange of Futures for Cash


DEFINITION of '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).

BREAKING DOWN 'Exchange of Futures for Cash'

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.

  1. Swap

    A derivative contract through which two parties exchange financial ...
  2. Short (or Short Position)

    A short position is the sale of a borrowed security, commodity ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  5. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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