Trading glossary: R-multiple, expectancy, drawdown, leverage and more
By Overfit Labs · Updated · Educational only, not financial advice.
R-multiple Expectancy Win rate Drawdown Leverage Liquidation Funding (rate) 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.
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.
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.
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.
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.
Guides that use these terms: trading journal, paper trading with leverage, trading discipline.