Offset

AAA

DEFINITION of 'Offset'

1. To liquidate a futures position by entering an equivalent, but opposite, transaction which eliminates the delivery obligation.

2. To reduce an investor's net position in an investment to zero, so that no further gains or losses will be experienced from that position.

INVESTOPEDIA EXPLAINS 'Offset'

1. Investors will offset futures contracts and other investment positions in order to remove themselves from any associated liabilities. Almost all futures positions are offset before the terms of the futures contract are realized. Despite the fact that most positions are offset near the delivery term, the benefits of the futures contract as a hedging mechanism are still realized.

2. If the initial investment was a purchase, a sale is made to neutralize the position; to offset an initial sale, a purchase is made to neutralize the position. For example, if you wanted to offset a long position in a stock, you could short sell an identical number of shares. By doing so, your net ownership of the stock would be zero, and you would not incur any further gains or losses from the position.

RELATED TERMS
  1. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  2. Offsetting Transaction

    In trading, an activity that exactly cancels the risks and benefits ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. National Futures Association - ...

    The independent self-regulatory organization for the U.S. futures ...
  5. Outright Futures Position

    A long or short trade on an underlying futures contract that ...
  6. Futures Contract

    A contractual agreement, generally made on the trading floor ...
RELATED FAQS
  1. Are Social Security benefits affected by unemployment benefits?

    According to the Social Security Administration, unemployment benefits do not affect Social Security benefits, but Social ... Read Full Answer >>
  2. How can I profit from a decline in the drugs sector?

    Profit from a decline in the drugs sector by short selling or by purchasing futures contracts or put options. Investors use ... Read Full Answer >>
  3. What other options does an investor have to buying physical silver?

    A wide variety of investment options are available to traders wishing to invest in the silver market. Buying physical silver ... Read Full Answer >>
  4. How can I profit from a fall in the automotive sector?

    You can profit from a fall in the automotive sector by short selling automotive stocks and exchange-traded funds (ETFs) or ... Read Full Answer >>
  5. Why are futures contracts important?

    On the surface, futures contracts are an instrument of price speculators who want to hedge a price risk or profit from coming ... Read Full Answer >>
  6. How do I invest or trade market indicators?

    Market indicators – often used interchangeably with technical indicators and economic indicators in lay conversations – are ... Read Full Answer >>
Related Articles
  1. Forex Education

    Getting Started In Foreign Exchange Futures

    Learn how these futures are used for hedging and speculating, and how they are different from traditional futures.
  2. Forex Education

    Forex: Gauging Forex Market Sentiment With Open Interest

    Examining open interest on currency futures can help you confirm the strength of a trend in forex market sentiment.
  3. Options & Futures

    Options On Futures: A World Of Potential Profit

    There's one simple hurdle in the transition from stock to futures options: learning about product specifications.
  4. Options & Futures

    Trading Options With The Zero-Cost Cylinder

    The zero-cost cylinder allows traders to effectively trade the market while protecting their downside.
  5. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  6. 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.
  7. 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.
  8. Options & Futures

    How To Lock In Low Oil & Gas Prices

    We provide a quick overview of how companies can manage the risk of adverse moves in commodity prices by hedging in the futures market.
  9. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  10. Options & Futures

    Was Buffet Right about Derivatives as WMDs?

    Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful?

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center