EFP

An Exchange for Physical (EFP) is a transaction in which a futures position is exchanged for a corresponding physical or over-the-counter (OTC) position. EFPs are widely used in oil and refined product markets to manage delivery obligations, basis risk, and physical exposure. For example, a trader holding a futures contract approaching expiry may use an EFP to swap that position into physical barrels or an OTC swap at an agreed differential. This allows the trader to avoid exchange delivery while maintaining market exposure. EFPs play a key role in linking paper and physical markets by aligning futures prices with real-world supply and demand. They are also used in arbitrage strategies, enabling traders to capture pricing discrepancies between exchange-traded and physical markets. From a risk management perspective, EFPs provide flexibility in transitioning between financial and physical positions without closing trades outright. As such, EFPs are a core mechanism through which futures markets interact with the physical energy system.