Trading Risk Glossary

Short definitions of the risk terms used across the calculators. Each links to a tool where it applies.

Position size: The number of shares or contracts in a trade. See the position size calculator.
Stop-loss: A planned exit price that limits your loss if the trade goes against you.
Risk per trade: The amount, often a percent of your account, you are willing to lose if the stop is hit.
R multiple: A trade result measured in units of the amount you risked. A $300 gain on $100 risked is +3R.
Reward-to-risk: Potential gain divided by potential loss on a trade. See risk/reward.
Win rate: The share of your trades that make money.
Break-even win rate: The win rate you need to make nothing, given your reward-to-risk ratio and before costs.
Expectancy: The average amount you make or lose per trade over many trades. See expectancy.
Profit factor: Total profits divided by total losses. Above 1 means winners outweigh losers.
Kelly criterion: A formula for the bet size that maximizes long-run growth. Traders often use half of it or less.
Drawdown: The fall from a peak balance to a later low, usually shown as a percent.
Trailing drawdown: A loss limit that rises with your highest balance, common on prop firm accounts.
Consistency rule: A prop firm rule limiting how much of your profit can come from a single day.
Risk of ruin: The chance of losing enough to end a plan or breach a limit. See the simulator.
Slippage: The difference between the price you expected and the price you got.
Leverage: Controlling a position larger than your own cash by borrowing. See margin and leverage.
Margin call: A broker demand to add funds or close positions when your equity falls below the maintenance requirement.
Premium: The price paid for an option, quoted per share and multiplied by 100 per contract.
Strike price: The price at which an option holder can buy or sell the underlying asset.
Break-even price: The underlying price at which an option position makes nothing at expiry. See options P&L.