Exchange of Futures for Cash

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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.

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RELATED FAQS
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    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
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    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
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    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
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