Questions / Quant trading, Sizing & risk
Gross exposure behind a small net position
A book has $1.4 million of longs and $1.1 million of shorts, with $0.5 million equity. Define gross leverage as total absolute notional divided by equity. What is gross leverage?
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Answer: 5 times
- Gross notional is 1.4+1.1=2.5 million. Dividing by 0.5 million equity gives leverage of 5 times.
Interview shortcut. Gross leverage = (long + short)/equity.
In the app this has a follow-up where one thing about the setup changes. Try the follow-up.