Learn something new every day
More Info... by email
"Legging in" is a type of financial strategy that usually refers to getting into an opportunity after the deal is already established and underway. Considered a workable approach especially among more conservative investors, this method allows the investor to hold off on making a buy or sale until someone else to take on the initial risk associated with the investment and then get involved once that risk is partially offset. Legging in is not uncommon with various types of futures contracts involving commodities, with investors buying into those contracts when there is more of a chance that the contracts will in fact turn a profit.
With legging in, the process can be somewhat detailed or very simple in nature. For example, one use of this strategy calls for setting up and executing a series of buys or sells that makes it possible to incrementally increase the investment in a certain position. This is in contrast to choosing to buy or sell in bulk in order to create that position. One benefit of using this ongoing series of orders is that at any point, the investor can bring the process to a halt if some new events or information threaten to derail the profitability of continuing.
In other situations, legging in involves adopting a wait and see approach to a given opportunity, only choosing to buy in or sell off when there is evidence that doing so is a good idea. For example, the investor may refrain from buying a futures contract at the onset of the issue. Instead, he or she might wait for a period of time to determine if the commodity involved with the contract is likely to appreciate by the expiration date of the contract, at least at a pace that is considered equitable. At that point, the investor approaches the current owner and offers to buy either a portion or all of the contract at the current going rate.
The general idea behind legging in is to wait until there is more evidence that the volatility associated with the investment is within reason before choosing to get involved. This process can be used to evaluate new futures contracts or even offerings on new shares of stock, giving the investor a little more time to see how the prices are moving in the marketplace. While the process can be somewhat-time consuming and require attention to detail, a successful legging in can result in lower risk for the amount of return that is ultimately realized.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!