close out

close out
Parties to a futures contract are said to close out (or closeout) the contract when they eliminate their obligation to deliver or take delivery of the commodities or securities. By doing this they seek to end their exposure to changes in the value of the future; while it is open, the future will be affected by changes in the price of the underlying commodity or security. The parties close out a future by entering into a second off-setting future with another party, or by agreeing with the other party to the future to cancel it in return for a compensating payment that reflects the change in value of the future since it was entered into.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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