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What Does "against Actual" Mean?

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  • Written By: Geri Terzo
  • Edited By: Lauren Fritsky
  • Last Modified Date: 31 August 2016
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Traders who buy and sell commodities, including futures contracts, complete complex transactions in order to protect or hedge positions. Against actual orders are one such trade. In this transaction, there must be two market participants, or traders, who are swapping out positions in futures contracts for positions in cash instead. Buyers and sellers agree on the terms of the trade, but the details must remain within the confines of the commodity exchange's rules.

To understand what an against actual order is, it might be helpful first to identify an actual in the trading markets. Actual represents the tangible or monetary commodity in an underlying futures contract as opposed to the actual contract itself. These assets could include energy resources including oil or gas, agricultural products including soybeans, or cash, for instance. Major commodity exchanges may limit the types of futures contracts that are eligible for against actual transactions, and those criteria, which should be outlined on the website of the exchange, could change.

In trading circles, against actual trades are synonymous with other terms. This order type can be referred to in the plural as against actuals, as an exchange for physical (EFP) and also versus cash. When a trader executes an order that is an exchange of futures for positions in cash, any of the aforementioned references may be used.

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There are essentially two components to these transactions. One of these layers is the value of the futures contract. The other is the purpose on the part of a trader to invest in a contract that has the appropriate underlying asset. That purpose might also include a hope to protect against an existing position in a separate futures contract. Traders negotiate the terms privately surrounding against actual orders before any transactions are executed. Depending on the type of trading software used, a market participant most likely needs to identify the order as an against actual transaction when submitting the framework of the order to a formal exchange.

Volume in against actual transactions is tracked on the exchanges where futures contracts are bought and sold. If there is particularly high volume surrounding against actual trades in a particular commodity, such as silver, there may be some incentive surrounding trading these contracts. For instance, sellers might be extending offers to buyers of silver futures contracts for high cash profits instead of accepting delivery of the physical asset for one reason or another, which could spur increased activity in this commodity.

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