Who this is for — Traders who want to measure how much total leverage they are really using. Essential when the portfolio includes hedges, spreads, or market-neutral strategies.
In plain terms — Gross exposure measures how much capital is committed in total, summing long and short without netting.
Prerequisites — Complete first silver-path (min.: position-sizing, trading-plan, drawdown, diversification). Foundation: bronze-path.
What gross exposure tells you
High gross exposure means greater sensitivity to market shocks, spreads, and execution costs. Even with low net exposure, gross can be high and make the portfolio fragile. For this reason monitor it daily alongside available margin. The metric complements net-exposure and does not replace it.
Example — Portfolio with 150% long and 140% short has net +10% but gross 290%. Apparently neutral, in reality highly exposed to sharp moves and costs.
Use in risk limits
Defining a gross exposure cap prevents silent leverage build-up. The limit can vary with market volatility and instrument liquidity. When gross rises, cut less efficient positions before opening new ones. On the Gold path gross feeds into aggregate-risk calculation.
Card
- What it is: absolute sum of open exposures.
- How to use it: control effective leverage and operational vulnerability.
- Typical mistake: watching only net and ignoring gross.
Gold path — Module: Portfolio and allocation. Part of gold-path.