Refers to the ratio between the deposited amount of cash relative to the exposure to the underlying asset.
Gearing is sometimes also calculated on the amount of cash utilised for “initial margin” relative to the exposure to the underlying market. In an investment portfolio it is the ratio of the funds deposited for investment relative to the market exposure.
A gearing of 1:3 means that for every R 100.00 invested, an exposure of R 300.00 is obtained in the market. The higher the gearing the greater the exposure to the market, the higher the reward and the higher the commensurate risk.