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).
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.