Trading Glossary
Use this glossary as a reference when reading our blog or docs. Each definition includes a short explanation suitable for AI extraction and a longer body for traders who want depth.
Drawdown
The peak-to-trough decline in account equity, expressed as a percentage of the prior peak.
Expectancy
The average profit or loss per trade: (win rate × average win) − (loss rate × average loss). Positive expectancy is a prerequisite for a profitable system.
Funding Rate
A periodic payment between long and short perpetual futures holders that anchors the contract price to the underlying spot price.
Kelly Criterion
A formula for optimal bet sizing that maximizes long-term geometric growth of capital, given known win rate and reward-to-risk ratio.
Leverage
The ratio of position size to margin posted. 10x leverage means a $1,000 margin controls a $10,000 position.
Liquidation Price
The price at which a leveraged position is forcibly closed because the margin can no longer cover losses.
Perpetual Futures
A derivatives contract with no expiry date that uses funding payments to track the underlying spot price.
Position Size
The number of contracts or notional value of a trade, derived from account size, risk percentage, and stop-loss distance.
Profit Factor
Total gross profit divided by total gross loss. A profit factor above 1.5 generally indicates a robust trading system.
R-Multiple
A trade outcome expressed as a multiple of initial risk: a 3R win means you made three times what you risked.
Sharpe Ratio
A risk-adjusted return metric that divides excess returns by their standard deviation. Higher is better; above 1 is good.
Slippage
The difference between the expected fill price of an order and the actual fill price, caused by market movement or thin liquidity.
Stop Loss
A predefined exit order that limits the maximum loss on a trade by closing the position when price reaches a chosen level.
Take Profit
A predefined exit order that closes a position at a target price to lock in gains automatically.
Win Rate
The percentage of trades that close in profit. Win rate alone does not determine profitability — it must be paired with reward-to-risk.