Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Exposure in finance definition

What is exposure?

Exposure is a general term that can refer to the total market value of a position, the total amount of possible risk at any given point, or the portion of a fund invested in a particular market or asset.

There are two types of exposure: financial exposure and market exposure.

Financial exposure explained

Financial exposure is the amount of capital that you stand to lose when you invest in an asset, otherwise known as risk. When investing, financial exposure is limited to the amount that you spend on opening a position – for example, if you invest in shares which become completely worthless, you would only lose the amount you paid. But, if you trade with leverage, your exposure increases because your capital is amplified beyond the initial outlay, known as your margin (deposit). In these cases, your profit and losses can be magnified.

Market exposure explained

Market exposure describes the portion of a fund or portfolio that is invested in a particular sector or asset. Normally, an investor or trader’s portfolio will be made up of different asset classes, like commodities, shares and forex. It is possible for one position to be exposed to multiple markets.

For example, if you have shares in a coffee-producing company, you would not only be exposed to the stock market, but also the commodity market and potentially the forex market too if the company was international.

Exposure examples

Financial exposure examples

If you were to invest in $500 worth of Apple shares, you could lose up to the total value of the shares if they become completely worthless. Your financial exposure therefore equals $500.

If you’d chosen to trade using leverage, your financial exposure would depend on your margin requirement and the full value of the trade. If the margin was 20%, you would have a risk exposure that was 80% beyond the amount you were required to deposit. Therefore, if you opened the trade and paid a margin of $200, your risk exposure would be equal to $1000.

Market exposure examples

Let say the total value of your portfolio is $10,000. If you have $3000 invested in gold, would have 30% market exposure to gold. And if you have $1500 invested in wheat, your market exposure is 15%, and so forth.

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