In general, a leg is one of several components or steps of a derivative transaction. In connection with combination options, it is one of the components of the option. A combination option (e.g., straddle, collar, strangle, spread, etc.) may consist of call and put option positions on the same underlying asset. Broadly, any option trade that is set up with more than one option type, strike price, or expiration date on the same underlying asset is a combination. The components may be exercised or resold separately, but in essence there components are traded as a unit or package.

With respect to swaps (e.g., a credit derivative swap), a leg is one of the two sides or parties to the swap. In a credit default swap, there are two legs: the protection leg (default leg) and the premium leg. For example, the protection leg is a regular stream of payments made by the protection buyer to the protection seller over the term of the swap.

In trading, a leg is one component of a derivatives trading strategy where a trader combines multiple option contracts or multiple futures contracts. The legs can involve virtually anything such as a leg associated with cash flows (for different indexes or rates) based on a notional principal amount (NPA) as agreed by the two parties.