Definition of 'Offsetting Transaction'
In trading, an activity that exactly cancels the risks and benefits of another instrument in the portfolio. An offsetting transaction is used when it is not possible to simply close the original transaction as desired. This frequently occurs with options and other more complex financial instruments.
In this way, a trader does not have to agree to close the option contract with the party on the other side of the options trade, but can simply cancel the net affect by entering into an offsetting transaction.
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