Financial Exposure

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DEFINITION of 'Financial Exposure'

The amount that one stands to lose in an investment. For example, one's financial exposure in his/her automobile would be the initial investment amount (cost) minus the insured portion (if any). Knowing and understanding one's financial exposure is a crucial part of the investment process.

BREAKING DOWN 'Financial Exposure'

Financial exposure is really just another name for risk. As a general rule, investors are always seeking to limit their financial exposure, while maximizing their profits. For instance, if one bought Acme Widgets at $10 per share and sold half of those shares when the stock reached $15, one has effectively cut his or her financial exposure in half, which is precisely why some investors utilize such strategies.

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