Exposure definition

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In trading, exposure is a general term that can mean three things:

  • the total market value of your trades at open
  • the total amount of possible risk at any given point
  • the portion of a fund invested in a particular market or asset

In stockbroking, your exposure would be equal to the total amount you had spent on opening positions. So if you bought $500 of Coca Cola shares, then the total amount you can lose on your trade is $500, if Coca Cola shares become worthless.

Leveraged trading works differently. Your exposure can be amplified considerably beyond your initial outlay, known as your margin. Some trades, for example, will only require a 10% margin and as such will be exposed 90% beyond the amount you deposit. In these cases, profit can be multiplied but losses can exceed initial deposits. For more information on limiting your risk, see our education section.

Finally, market exposure can refer to the portion of a fund or portfolio that is invested in a particular sector or asset. A £10,000 portfolio that has £3,000 invested in gold, for example, would have 30% market exposure to gold.

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