I'm in a 12 team 5x5 league (23 man active roster, 7 bench players, 2 farm team players)
There is a cap of '40 players' on your roster, so it's possible to gain roster spots. For example, if you trade 1 player for 2 players, you essentially gain a roster spot while the other owner loses a roster spot (he can't pick up a player to replace that lost spot). Likewise if you trade $5 draft dollars for 1 player, you would gain a roster spot while the other owner loses a roster spot.
Any FA or WW 'add' requires a drop. Additionally, if you bring a player up from your farm team to your active roster or bench, you must drop a player.
An issue has come up in our league surrounding trading farm team players. I was told by the commish that if I trade a farm team player for a player on an owner's active roster, I would need to drop a player. I disagree with this. My argument is, since there is no farm player being added to an active roster, there is no reason for me to have to drop a player. I would gain a roster spot just as if I did an uneven trade or a trade for draft dollars. Now if the owner who acquires this farm team player brings him up, then he of course would need to drop someone.
Let me know if anything isn't clear. Your opinions on this would be greatly appreciated!