35 terms

Exposure and leverage

Beta-weighted delta: Every position's directional exposure converted into equivalent shares of one benchmark, giving a single portfolio risk number.
Buying power: The notional value of securities you can purchase right now given cash, margin entitlement and current positions — not the same number as your account equity.
Concentration risk: Exposure to loss from a single position, issuer, sector, country or factor being large enough that its failure meaningfully damages the whole portfolio.
Correlation matrix: A table of pairwise correlations between your holdings, which usually reveals that a diversified-looking book is two or three bets.
Dollar delta: A position's delta expressed in currency, telling you the profit or loss for a one-percent move in the underlying.
Effective leverage: Total notional exposure divided by account equity: the leverage you are actually using, which is usually far below the maximum the broker allows.
Effective number of bets: How many genuinely independent positions a portfolio behaves like, which is almost always far fewer than the number of tickers.
Equal dollar weighting: Allocating the same notional amount to each position, which equalises capital but not risk.
Equal risk weighting: Sizing each position so every holding contributes a similar amount of expected loss or volatility.
Exposure: How much of your capital is committed to market risk at a given moment, by asset, direction, sector or factor.
Forced liquidation: Your broker closing positions for you because equity fell below maintenance requirements, at prices and times you do not choose.
Free margin: Equity minus used margin: the amount available to open new positions or to absorb losses on existing ones before a close-out becomes possible.
Gross exposure: The sum of all long and short position values added together, ignoring direction; a measure of total activity and leverage.
Inverse volatility weighting: Allocating capital in proportion to one divided by each asset's volatility, so calmer instruments get more money and each contributes similar risk.
Leverage ratio: Total position value divided by account equity, stating how many dollars of exposure each dollar of capital controls.
Liquidity risk: The risk that you cannot exit at a reasonable price because there are no buyers at the size you need, when you need them.
Long/short ratio: The proportion of long exposure to short exposure in a portfolio, a quick statement of directional tilt.
Long/short ratio: The balance of long versus short positioning on a venue, reported by account count or by position size, used as a crowding gauge.
Margin cushion: The buffer between current equity and the level at which the broker would issue a call or liquidate.
Margin utilisation: The percentage of your available margin currently in use, a fast proxy for how close you are to forced deleveraging.
Maximum open risk: The sum of what every open position would lose if all stops were hit at once, capped by a pre-set ceiling.
Net exposure: Long position value minus short position value, expressing your directional bet on the market as a whole.
Notional exposure: The full market value of the currency you control, as opposed to the margin posted for it; the number that determines how much you actually make or lose per pip.
Notional sizing: Choosing a position by the face value it controls rather than by the loss it can cause.
Overnight exposure: Positions held through the close, when you cannot react and the next price you see may be far from the last.
Overnight exposure limit: A pre-set cap on how much risk or notional you will carry through the close, enforced before the bell not after it.
Portfolio beta: The capital-weighted average beta of your holdings, expressing the whole book's sensitivity to the benchmark.
Portfolio volatility: The standard deviation of the whole book's returns, which is lower than the weighted average of position volatilities unless everything is correlated.
Position limit: A cap on how many contracts one participant may hold in a derivative, imposed by exchanges or regulators to limit manipulation and concentration risk.
Return on margin: Profit measured against the margin posted rather than against total account equity, which flatters leveraged results.
Risk budget: A total quantity of risk allocated across strategies, sectors or time periods, spent deliberately rather than consumed by accident.
Risk contribution: How much of total portfolio volatility a single position is responsible for, accounting for its correlation with everything else.
Sector exposure: How much of your risk sits in one industry group, which is usually far more than the position list suggests.
Single-name limit: A hard cap on how much risk or capital any one instrument may take, independent of how good the idea looks.
Weekend risk: The gap risk specific to holding through a non-trading period, when news accumulates for 48 hours or more with no way to react.

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