Trading glossary: R-multiple, expectancy, drawdown, leverage and more
By Daily Edge · Updated · Educational only, not financial advice.
R-multiple Position size Expectancy Risk of ruin Win rate Overfitting Information coefficient (IC) Drawdown Leverage Liquidation Funding (rate) Maker / taker fee Spread Break-even price Proof of reserves SMA / EMA VWAP Bollinger Bands
R-multiple
A trade's result expressed in units of the amount you planned to risk (1R). If you risk $50 (entry to stop) and make $100, that's +2R; hitting the stop is −1R. It makes trades of different sizes comparable. To set 1R before a trade, see the position size guide.
Position size
How much you buy or sell in one trade. Risk-based sizing sets it as risk amount ÷ stop distance, so hitting the stop loses the amount you planned. See the position size guide and the position size calculator.
Expectancy
The average result per trade: (win rate × average win) − (loss rate × average loss), often in R. Positive expectancy over a large sample is what a strategy needs. A high win rate alone isn't enough. Check your own numbers with the expectancy and risk of ruin calculator.
Risk of ruin
The chance that a run of losses takes an account down to a level you can't or won't keep trading from (for example, half the starting balance). It rises fast with the share of the account risked per trade and falls with a bigger edge. Estimate it from your win rate, average win and loss and risk per trade with the risk of ruin calculator.
Win rate
The share of trades that closed in profit. It means little on its own: a 30% win rate can be profitable with large winners, and a 90% win rate can lose money if the few losses are big.
Overfitting
Tuning a strategy or model so closely to past data that it fits the noise rather than a lasting pattern. It looks great in a backtest and disappoints on new data. Guard against it with out-of-sample tests and forward paper trading. See the backtest checklist and can AI predict crypto prices?
Information coefficient (IC)
The correlation between a model's forecasts and what actually happened. RankIC is the same idea using rankings. A positive value means forecasts lined up with outcomes better than chance; it is not a hit rate or a profit figure, and small values are normal for market data. See can AI predict crypto prices?
Drawdown
The fall from an equity peak to a later low, in dollars or percent. Maximum drawdown is the worst such fall. A 50% drawdown needs a 100% gain to recover.
Leverage
Controlling a position larger than your margin, e.g. 10x means $100 of margin controls $1,000. Gains, losses and fees are all relative to the full position, so a 1% move is about a 10% change in margin at 10x.
Liquidation
A forced close of a leveraged position when losses use up the margin down to the maintenance requirement. For an isolated long it happens after a drop of roughly 1/leverage minus the maintenance rate, before fees. The margin on that position is lost.
Funding (rate)
Periodic payments between long and short holders of perpetual futures that keep the contract price near the spot price. When funding is positive, longs pay shorts; when negative, shorts pay longs. Intervals and rates vary by exchange.
Maker / taker fee
A maker order rests on the order book until someone trades against it (for example a limit buy below the current price); a taker order fills straight away against an existing order (for example a market order). Many exchanges charge makers less than takers. See crypto trading fees explained, or compare both rates with the trading fee calculator.
Spread
The gap between the best bid (highest buy order) and the best ask (lowest sell order). Buying at the ask and selling at the bid loses the spread even before fees, so it is a trading cost that never shows up as a fee line. It is usually tight on liquid pairs and wider on thin ones. The trading fee calculator adds it to your fee cost per round trip.
Break-even price
The exit price at which a trade returns exactly what it cost, after entry and exit fees. For a long it sits a little above the average entry price; for a short, a little below. Work it out from your own fills with the break-even price calculator.
Proof of reserves
A check that an exchange or other custodian held at least as much of each covered asset as it owed its customers at one moment, usually a Merkle-tree snapshot of balances compared with wallets the exchange proves it controls. It is a point-in-time snapshot with limits. See proof of reserves explained.
SMA / EMA
Simple and exponential moving averages: the average closing price over the last N candles. The EMA weights recent prices more, so it reacts faster. Both lag price and are commonly used to judge trend direction.
VWAP
Volume-weighted average price: the average price weighted by traded volume, usually reset each session. Traders use it as a reference for whether price is above or below the session's average traded level.
Bollinger Bands
A moving average (typically 20 periods) with bands a set number of standard deviations (typically 2) above and below. The bands widen when volatility rises and narrow when it falls. Touching a band isn't a signal on its own.
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