Financial Exposure

Financial exposure describes the risk associated with an investment and the potential loss to the investor.

In order to maximize earnings, seasoned investors typically look for the best way to restrict their financial exposure.

Diversification of the portfolio and asset allocation are two often utilized techniques for controlling financial exposure. Financial exposure is present whenever someone is at risk of losing any of the principal money they have invested, not just when they are trading stocks. A great illustration of financial exposure is buying a house. The homeowner experiences a loss on the investment if the value of the real estate decreases and the sale price is lower than the initial purchase price.