Close this search box.

Table of Contents



In financial terms, “Leg” refers to a component of a complex financial transaction. For example, in a multi-step investment strategy, each individual step is considered a leg. Moreover, it can also refer to the risk or potential losses that occur between the execution of two parts of a complex trade.


The phonetic spelling of the word “Leg” is /lɛɡ/.

Key Takeaways

  1. In the world of finance, a leg is a component of a multi-component deal, such a spread strategy. To hedge a position, profit from arbitrage, or gain from a spread widening or narrowing, a trader will “leg-into” a strategy.
  2. Legs can be composed of a variety of financial products, including options, futures, and swaps. There are normally two or more legs in a deal, though this number might vary.
  3. Legs can be entered and exited separately, giving traders greater flexibility in risk management. In volatile markets where the price of the underlying asset can change quickly, this can be extremely helpful.


In the realm of business and finance, the term “leg” is significant because it refers to a single component or stage within a broader trading strategy or financial transaction. It’s a term most commonly used in options trading, where it represents each individual position that makes up a complex trading strategy. This could be buying or selling any combination of calls and puts. The achievement of an entire financial endeavor frequently relies on the success of each ‘leg’. Strategies including spreads, straddles, and collars may comprise multiple ‘legs’ or phases, each of which must be monitored closely and managed efficiently. Hence, by understanding what each “leg” reflects, traders can identify issues or opportunities in their trading strategy, making the term an essential component of effective financial management.


In the world of finance and business, a “leg” refers to one component or stage of a multi-step transaction or trading strategy. Essentially, it can be considered as one part of a series of business maneuvers, trades, or deals that together form a larger strategy. Often, these legs are designed to be completed in a specific sequence and each leg must be executed properly for the entire strategy to be successful. Traders and businesses use the concept of legs to divide complex processes into more manageable parts.

An excellent example of the use of a “leg” is in options trading. A trader might employ a multi-leg options strategy, such as a spread, straddle or strangle. In these cases, different legs refer to the purchase or sale of different options (for example, a call option or a put option). These trades make up the cumulative strategy and may aim to hedge risk, exploit market inefficiencies, or take advantage of specific market conditions. Therefore, the purpose of a leg is to enable strategic planning, maximize profitability, and minimize risk in financial and business operations.


1. Stock Trading: In the world of stock trading, “leg” is a term commonly used to describe a single component of a multi-step trade or strategy. For example, a trader might first buy shares of a company (first leg), then sell an equivalent number of call options (second leg), creating a covered call strategy.

2. Real Estate Investment: A real estate investor might buy a property (first leg), make renovations to increase its value (second leg), and then sell or rent out the property (third leg). This is often called a “flip” or “property development.”

3. Currency Trading: In currency trading or Forex, a leg could be a part of a complex trading strategy such as a triangular arbitrage – buying a first currency pair (first leg), then buying a second currency pair (second leg) where the second currency of the first pair matches first currency of the second pair, and finally selling the first currency pair (third leg) to make profit.

Frequently Asked Questions(FAQ)

: What is a ‘Leg’ in terms of finance and business?

A ‘Leg’ in financial terms usually refers to a component of a complex trading strategy that involves multiple transactions. It can also denote any separate or distinct part of a trading strategy.

In what type of trades is a ‘Leg’ often used?

Legs are often employed in multi-step financial transactions, such as in options strategies that involve the purchase or sale of multiple options on the same or different underlying securities.

Can you give an example of a ‘Leg’ in options trading?

Yes, for example, in a straddle options strategy, one leg could be buying a call option and the other leg, buying a put option. These two transactions are parts or ‘legs’ of the overall strategy.

What are the risks associated with ‘Legging’ into a trade?

When traders attempt to get into each transaction or ‘leg’ one at a time, there is a risk that market conditions might change, causing the later transactions to be unfavorable. This phenomenon is called ‘leg risk.’

How can one mitigate the risks associated with legging into a trade?

Traders can mitigate these risks by using automated programs or algorithmic trading systems that can simultaneously execute all the legs of a trade.

Is understanding ‘Leg’ important for an investor or trader?

Yes, understanding ‘Leg’ is particularly crucial for investors who deal with complex financial products like options, swaps, and futures, as it helps in better implementing and managing multi-part strategies.

Related Finance Terms

  • Contract: This refers to a written or spoken agreement that is enforceable by law, which is a key aspect when discussing a Leg in business deals.
  • Hedging: This is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities, highly associated with legs.
  • Options Trading: An investment strategy with many possible legs, through which traders buy and sell options that contractually gives them the right to sell or buy an underlying asset at a predetermined price.
  • Expiry Date: This term refers to the date at which an options contract, and therefore a leg of an options strategy, becomes void.
  • Strike Price: This refers to the price at which a specific derivative contract can be exercised. It is a significant part in every leg of an options trade.

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More