What Is the Risk of ‘Unwinding’ a Hedge Too Early or Too Late?

Unwinding a hedge too early means the spot price risk is re-exposed before the underlying transaction occurs, potentially leading to a loss if the price moves adversely. Unwinding too late means the futures contract may enter the delivery period or the convergence process is fully complete, which can involve unexpected costs or forced physical settlement.

The ideal time to unwind is precisely when the underlying spot transaction is executed.