Exchange of Futures for Cash

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DEFINITION

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).

INVESTOPEDIA EXPLAINS

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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