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Legacy Hedge

What does Legacy Hedge mean?

A hedge position hold for an extended period of time. Commodity companies generally prefer to have legacy hedges that give them a more stable stream of revenue.

Futures Knowledge Explains Legacy Hedge

For example oil & gas companies do hedging activities to limit downside pricing risk. A company hedges at prices that ensure a targeted internal rate of return. If prices today are sufficient to deliver an appropriate rate of return to the investment in the well, the oil company can enter into a forward contract for a long period to sell the forecasted production from that well at current prices, thus locking in their revenue stream. Any unforeseen drop in oil prices during the life cycle of the well will not its viability.

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