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 your portfolio invested in a particular market or asset.
In stock trading, your exposure would be equal to the total amount you had spent on open positions.
For example, if you bought $500 of Apple, then the total amount you can lose on your trade is $500 if Apple’s stock price goes to zero.
Leveraged trading works differently. Your exposure can be amplified considerably beyond your initial outlay, known as your margin.
For example, some trades will only require a 10% margin. This means that you’ll be exposed 90% beyond the amount you deposit.
In these cases, profit can be multiplied but losses can exceed initial deposits.
Finally, market exposure can refer to the portion of a fund or portfolio that is invested in a particular sector or asset.
For example, a $100,000 portfolio that has $5000 invested in bitcoin would have 5% market exposure to bitcoin.
Vincent Nyagaka is a Professional Trader, Analyst &. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Checkout Vincent’s Professional Trading Course here.