I am new to the concept of Exchange Futures for Physical (EFP). According to some sources (link),

An Exchange for Physical (EFP) is a transaction involving the simultaneous exchange between two parties of a futures position with a basket of physical assets.

I am pretty confused why the two positions are equivalent in value.

I assume the futures has notional value equivalent to the basket of physical assets, for example for index futures, the basket of physical assets would be each individual stocks in the index with proportional weight. Therefore, the market value of the futures should be different from that of the basket.

It implies that the two parties in EFP agreement are doing an exchange of positions that are not equivalent in value. It seems strange to me. So my question is:

In addition to the above change in positions, should it be any cash exchange in compensation of the difference between two position? For example, the market value of an index futures are generally lower than that of the basket of index stocks. Should the party exchanging futures for the basket pay for such difference?


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