An adjustment to the number of futures contracts used to hedge a position in an attempt to make the present market exposure of the hedge offset the underlying exposure (i.e., exposure to the asset underlying a futures contract). Flows of variation margin give rise to interest expenses or interest earnings, and hence is the need for tail hedging. More specifically, hedging with futures typically involves taking a position in a futures market that is opposite the position already held in a cash market. Tailing has the effect of converting the futures position into a forward position. It negates the effect of daily resettlement, in which profits and losses are realized before the day the hedge is lifted.

For more details, see: tailing the hedge.