Newborns are most frequently wrapped with their legs tucked inside the wrap rather than sticking out the bottom as you’ll see with bigger babies.
The reason for this is that newborns are still naturally womb shaped. They curl up. They pull in their little legs. And if that is what your baby’s body seems to want to do, go with it! Wrap around that ball of a baby!
However, there is no reason not to wrap newborn legs sticking out of the wrap if that is comfortable for your baby. Baby does not need to be able to spread legs wide or straddle your torso. In fact, newborn legs are so tiny that the length of thigh from bottom to knee fits in front of a mama’s tummy with only a slight spread.
In the photos below you can see that Annabelle’s legs do not have to stretch around my waist or spread wide across my torso–she’s 6 weeks old in these pictures, and I’m wearing her low in the second picture because she’s been nursing in the front wrap cross carry.
As always when wearing your baby, a newborn must be supported under the bottom, and not just by the crotch. This optimum position can be achieved by either tucking the baby’s legs in and wrapping around the whole bottom of the baby, or by letting baby’s legs hang out, but wrapping under the baby’s bottom with the wrap extending to the baby’s knees, so that only the baby’s calves are dangling down from the knee. The baby’s knees should be even with or higher than the baby’s bottom.
In conclusion, do what works best for you and your baby in terms of leg position. In or out is fine for a newborn.