Legacy Hedge

You buy a house with elaborate topiaries...bushes shaped to look like dragons and centaurs. Legacy hedges.

In finance, the term applies to a hedge position a company has held for a long time. Firms often use the derivatives market to protect themselves against unfriendly market shifts. When an organization holds one of these positions for an extended time frame, it's considered a legacy hedge.

You own a small airline ferrying people from Fairbanks, Alaska, to the Kamchatka Peninsula in Russia. If jet fuel prices get too high, you can’t operate profitably. So you set a hedge that pays off if oil prices rise above $100 a barrel, the point where fuel prices get too steep for your airline to operate.

Luckily, oil prices have held well below the $100 level for several years now. But you keep the hedge in place, just in case. That's a legacy hedge.