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Exchange of Futures for Physicals (EFP)
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A technique (originated in physical commodity markets) whereby a position in the underlying is traded for a futures position. In financial futures markets, the EFP bypasses any cash settlement mechanism that is built into the contract and substitutes physical settlement. EFPs are used primarily to adjust underlying cash market positions at a low trading cost. An EFP by itself will not change either party's net risk position materially, but EFPs are often used to set up a subsequent trade which will modify the investor's market risk exposure at low cost. Occasionally called Against Actuals (AA), Cash-Futures Swap, Ex-Pit Transaction. See Basis Trade (1), Portfolio Trade.
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Glossary *
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