what is net exposure 
net exposure is the difference between a hedge fund s long positions and its short positions expressed as a percentage this number is a measure of the extent to which a fund s trading book is exposed to market fluctuations net exposure can be contrasted with a fund s gross exposure which does not offset long and short positions net exposure is therefore often a more accurate measure of a fund s amount at risk understanding net exposurenet exposure reflects the difference between the two types of positions held in a hedge fund s portfolio if 60 of a fund is long and 40 is short for example the fund s gross exposure is 100 60 40 and its net exposure is 20 60 40 assuming the fund uses no leverage more on that below the gross exposure refers to the absolute level of a fund s investments or the sum of long positions and short positions a fund has a net long exposure if the percentage amount invested in long positions exceeds the percentage amount invested in short positions and has a net short position if short positions exceed long positions if the percentage invested in long positions equals the amount invested in short positions the net exposure is zero a hedge fund manager will adjust the net exposure following their investment outlook bullish bearish or neutral being net long reflects a bullish strategy being net short a bearish one net exposure of 0 meanwhile is a market neutral strategy gross exposure vs net exposureto say a fund has a net long exposure of 20 as in our example above could refer to any combination of long and short positions as an example consider a low net exposure does not necessarily indicate a low level of risk since the fund may have a significant deal of leverage for this reason gross exposure long exposure short exposure should also be considered gross exposure indicates the percentage of the fund s assets that have been deployed and whether leverage borrowed funds is being used if gross exposure exceeds 100 it means the fund is using leverage or borrowing money to amplify returns the two measures together provide a better indication of a fund s overall exposure a fund with a net long exposure of 20 and a gross exposure of 100 is fully invested such a fund would have a lower level of risk than a fund with a net long exposure of 20 and a gross exposure of 180 since the latter has a substantial degree of leverage net exposure and riskwhile a lower level of net exposure does decrease the risk of the fund s portfolio being affected by market fluctuations this risk also depends on the sectors and markets that constitute the fund s long and short positions ideally a fund s long positions should appreciate while its short positions should decline in value thus enabling both the long and the short positions to be closed at a profit even if both the long and short positions move up or down together in the case of a broad market advance or decline respectively the fund may still make a profit on its overall portfolio depending on the degree of its net exposure for example a net short fund should do better in a down market because its short positions exceed the long ones during a broad market decline it is expected that the returns on the short positions will exceed the losses on the long positions however if the long positions decline in value while the short positions increase in value the fund may find itself taking a loss the magnitude of which will again depend on its net exposure measures fund manager s expertise performanceindicates fund s vulnerability to volatility