Exchange of Futures for Cash

AAA

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).

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
  2. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  3. Long (or Long Position)

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

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

    Traditionally, the exchange of one security for another to change ...
  6. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
Related Articles
  1. Getting Started In Foreign Exchange ...
    Forex Education

    Getting Started In Foreign Exchange ...

  2. Interpreting Volume For The Futures ...
    Options & Futures

    Interpreting Volume For The Futures ...

  3. Futures Fundamentals
    Insurance

    Futures Fundamentals

  4. Credit Default Swaps: What Happens In ...
    Insurance

    Credit Default Swaps: What Happens In ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center