In the context of trading, a leg is a single position taken in a transaction. If a trader buys 100 shares of a firm, the purchase (long position in the shares) is the trader’s first leg. The second leg will exist when the trader sells the shares later to another market participant. In this sense, a trader takes one of two offsetting positions in order to capitalize on the potential change in the price relating to the securities involved in the other position. Overall, the process aims to execute the entire trade or transaction on favorable terms.
In advanced trading strategies, such as those involving derivatives like futures and options, multi-leg orders are involved, in which, more than one leg is used (e.g., 2, 3, and 4 legs) and executed as part of a single trade.
Comments