Legacy Hedge

AAA

DEFINITION of 'Legacy Hedge'

A hedge position that a company holds for an extended period of time. Commodity companies, such as gold and oil producers, will often have legacy hedges on their reserves. This gives them a more stable stream of revenue as the hedge provides price guarantees.

INVESTOPEDIA EXPLAINS 'Legacy Hedge'

Depending on the movement of market prices over time, a legacy hedge can become extremely valuable or negative for the company. For example, suppose that a gold producer hedged five million ounces of gold over a 10-year period beginning in 1998 at $200. If the price of gold falls over the 10-year period, the hedge will benefit the gold producer because it is selling its gold above the market price. However, if the price of gold rises to $500, the gold producer will be selling at a significantly lower rate than the market price and will not benefit from the higher prices.

RELATED TERMS
  1. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  2. Bullion

    Gold and silver that is officially recognized as being at least ...
  3. Selling Hedge

    A hedging strategy with which the sale of futures contracts are ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Buying Hedge

    A transaction that commodities investors undertake to hedge against ...
  6. Futures Contract

    A contractual agreement, generally made on the trading floor ...
RELATED FAQS
  1. What are the primary sources of market risk?

    Market risk is the risk of loss due to the factors that affect an entire market or asset class. Market risk is also known ... Read Full Answer >>
  2. How do I learn technical skills for trading commodities?

    Many resources are available for those seeking to learn to trade commodities, also known as futures, directly from the major ... Read Full Answer >>
  3. What techniques can be used for hedging exposure to the electronics sector?

    Hedging exposure to the electronics sector offers an investor a way to insulate his portfolio from losses during periods ... Read Full Answer >>
  4. How does market risk differ from specific risk?

    Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >>
  5. How can an investor make money from a decline in the electronics sector?

    Speculation methods, such as short selling, futures contracts and put options, offer investors a way to make money from a ... Read Full Answer >>
  6. How can I calculate the notional value of a futures contract?

    Calculate the notional value of a futures contract by multiplying the size of the contract by the price per unit of the commodity ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Options & Futures

    Trading Gold And Silver Futures Contracts

    If you are a hedger or a speculator, gold and silver futures contracts offer a world of profit-making opportunities.
  4. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  5. Mutual Funds & ETFs

    The Top 3 Silver ETFs

    Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand.
  6. Active Trading Fundamentals

    Invest In Gold Through ETFs

    The mystique of the yellow metal captivates market players seeking hedges against inflationary pressure, safe haven in turbulent times and opportunities for speculative trading opportunities. ...
  7. Forex Strategies

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.
  8. Active Trading Fundamentals

    Where And How Should You Make Your First Trade?

    New traders should enter markets that offer the greatest opportunity for learning their craft while keeping risk at a minimum.
  9. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  10. Options & Futures

    Introduction To Trading In Oil Futures

    An introduction to oil futures, how the market arrives at oil futures prices, what futures prices mean, and how investors can exploit them.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center