Offset

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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.

BREAKING DOWN '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.

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