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What does Fungibility mean?

Fungible means interchangeable. In finance, fungible assets means interchangeable assets that are identical in specifications. For example, dollar is a fungible asset as there is no difference between one dollar and another dollar. Fungibiltiy is the property of an asset being interchangeable with other assets of the same type.

Futures Knowledge Explains Fungibility

The fungibility property makes a financial institution or a commodity freely substitute-able.  These have standard specifications and units that makes exchange process simple. Such assets are known to be very liquid. Interchangeability assumes that everyone values all goods of that class as the same.

For example, Gold is a fungible asset as there is no difference between one gold bar and another gold bar of the same specifications.  Also, stocks of the same company trading in different countries would be considered fungible. Similarly, options and futures contracts would be fungible as they are standardized agreements. However, forwards and swaps are not fungible as they are customized agreements.

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