Gross Exposure
Candlefocus EditorThe calculation of gross exposure is relatively straightforward. It is simply a sum of all the long and short positions held by the fund, as well as any leverage used, expressed as a percentage of the total fund’s assets. For example, if a fund has $1 billion in total assets, and holds $500 million in long positions, $400 million in short positions and is leveraging its investments by 10%, its gross exposure would be 90%. This means that the fund has $900 million of its total assets at risk in the financial markets and is leveraging its positions by 10%.
A higher gross exposure indicates that a fund is engaging in more aggressive market activities and has a greater amount of capital at risk. This form of market risk taking can be highly profitable in the right circumstances, but it can also be disastrous if the underlying markets turn against the fund. As such, gross exposure is a useful measurement tool for understanding the level of risk taken by investment funds and allows investors to make informed decisions about their investments.
In summary, gross exposure is a vital metric in assessing the financial market risk taken by investment funds and other traders. It takes into account all long and short positions, as well as any leverage used, express as a percentage of the fund’s assets. Knowing the gross exposure of a fund can help investors make more informed decisions about their investments and help ensure that the risks taken by the fund are within the acceptable range.