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What is gearing?

April 26, 2017gearing

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What is gearing?

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Gearing (or leveraging) measures the value of your position as a ratio of the value of the risk capital actually invested. In case of index futures, if the margin requirement is 5%, the gearing possible is 20times as on a given fund availability, an investor can take a position 20 times in size.

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“Gearing” is a short way of describing the relationship between how quickly your engine is rotating (“revolutions per minute” or “rpm”) versus how quickly the drive (rear) wheel on your motorcycle is rotating (“road speed”). This relationship determines how fast you travel down the road at each given engine rpm in each gear, and, even more importantly, how much thrust force you have to overcome the effects of mechanical friction, aerodynamic drag, and hills, and still have thrust force left over to accelerate (as when passing another vehicle!) There are 5 components on motorcycles that work together to create your overall gearing: 1. The rpm range in which your engine likes to operate 2. The numerical primary drive ratio (the ratio between engine rpm and clutch shaft rpm) 3. The 5 or 6 gear set ratios in your gearbox (1st gear, 2nd, 3rd, etc to “top gear”) 4. The final drive ratio (ratio of rear sprocket size versus countershaft sprocket size) 5. The overall diameter of your drivewheel