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What Is the Significance of ‘Fungibility’ in Financial Derivatives?

Fungibility is crucial in financial derivatives because it ensures that all contracts of the same type, strike price, and expiration are perfectly interchangeable. This interchangeability facilitates liquidity and efficient market making.

Without fungibility, a market maker would have to price each contract individually, severely hindering the standardization necessary for derivatives trading, including options.

How Does Standardization Enhance the Liquidity of Futures Contracts?
Why Is a Central Limit Order Book Less Suitable for Complex Financial Derivatives?
How Does the Liquidity of the Underlying Token Affect the Pricing of Its Futures Contract?
How Does True Fungibility Benefit a Currency?