Who this is for — Traders using long and short positions who want to quantify the portfolio's effective direction. Useful for understanding how much results depend on general market movement.
In plain terms — Net exposure tells you whether, overall, you are more long or more short on the market.
Prerequisites — Complete first silver-path (min.: position-sizing, trading-plan, drawdown, diversification). Foundation: bronze-path.
Calculation and operational interpretation
Net exposure is total long minus total short. Positive values indicate bullish bias; negative values indicate bearish bias. A value near zero does not mean no risk: there can be heavy leverage on both sides. For this reason always read it with gross-exposure.
Example — 120% long and 80% short produce net exposure +40%. The portfolio remains directionally bullish even though it contains short hedges.
Relationship with risk and allocation
Net exposure helps control alignment between macro view and real positioning. In uncertain phases it helps to reduce net bias to contain curve volatility. Control must be dynamic to prevent market moves from altering target weights. In the portfolio module it is a core metric alongside aggregate-risk.
Card
- What it is: directional balance between long and short exposures.
- How to use it: align market bias with portfolio limits.
- Typical mistake: confusing it with total risk taken.
Gold path — Module: Portfolio and allocation. Part of gold-path.