Last Updated on July 23, 2022
Legging in refers to the act of entering multiple individual positions that combine to form an overall position and is often used in options trading.
There is risk associated with legging in, namely leg risk, which is the risk that the market price in one or more of the desired legs will become unfavorable during the time it takes to complete the various orders.
Legging in may also refer to the setting up of an entry position of a complex financial investment separately from setting up the exit or unwinding of the position; or when a debtor or creditor enters into a hedging contract after the debt instrument has been issued or acquired in order to lower financial risk
Legging in is a common practice used to lower the overall cost when buying and selling complex strategies involving options and futures contracts. Spreading strategies in the options market is popular since it allows a trader or investor to customize a particular profit and loss structure when betting on a specific outcome or set of outcomes in the underlying security.