Glossary › Risk

Trading glossary

Risk words

40 words, each explained first as you would tell a ten-year-old.

1. 1% ruleA safety habit: on any one trade, never risk losing more than one small slice, one part in a hundred, of your money.
2. ATR stopA safety exit placed far enough away to match how much price normally wiggles, so ordinary wiggles do not knock you out.
3. average lossHow much you lose on a normal losing trade: add up all the losses and share them out evenly across the losing trades.
4. average winHow much you make on a normal winning trade: add up all the wins and share them out evenly across the winning trades.
5. breakevenThe point where you have not won or lost any money: what you made exactly covers what you lost.
6. breakeven win rateThe smallest share of trades you must win so your wins pay for your losses. Bigger wins let you lose more often.
7. correlationHow much two prices tend to move together. If they always rise and fall together, owning both is like one bigger bet.
8. daily loss limitA rule that makes you stop trading for the day once you have lost a set amount, like a fuse that cuts the power.
9. drawdownHow far your money has dropped from its highest point before it climbs back to a new high.
10. equity curveA line that shows how your account's money went up and down, trade after trade.
11. exposureHow much money you have riding on a market, and so how much a move in that market can change your account.
12. gap riskThe danger that price jumps right past your safety exit while the market is closed.
13. hedgeA second trade that protects you, going up when your first trade goes down, like insurance.
14. invalidationThe price that would prove your trade idea wrong, where you should get out.
15. leverageUsing borrowed money so a small amount of your own controls a much bigger trade. Wins and losses both get bigger.
16. liquidationWhen the trading company closes your borrowed-money trade by force because your losses ate up the deposit.
17. losing streakSeveral losing trades in a row. It happens to everyone, even with a good plan.
18. maintenance marginThe smallest amount of money you must keep in your account while a borrowed-money trade is open.
19. marginThe money you put down as a deposit so you can control a bigger trade with borrowed money.
20. margin callA message from the trading company saying you must add money now, because losses used up too much of your deposit.
21. maximum drawdownThe biggest drop your money ever took from a high point to a low point.
22. open riskThe total money you would lose if every trade you have open right now hit its safety exit.
23. partial exitClosing only part of a trade to lock in some profit, and letting the rest keep going.
24. position sizingWorking out how many shares or coins to buy so that if your safety exit is hit, you only lose a small, set amount.
25. position valueHow much all the shares or coins in your trade are worth together right now.
26. R multipleA way to measure a trade's result in units of what you risked: winning twice your risk is 2R.
27. rewardHow much you hope to win if your trade reaches its goal.
28. riskHow much money you could lose on a trade if things go wrong.
29. risk of ruinThe chance of losing so much money that you cannot keep trading.
30. risk per tradeHow much of your money you agree to lose on one trade if it goes wrong, like one small slice.
31. risk-to-reward ratioComparing how much you could lose with how much you could win on a trade, like risking 1 to win 2.
32. rulebookYour own written list of safety rules for trading, such as how much you may lose each day.
33. slippageWhen your trade happens at a worse price than you expected, because price moved too fast.
34. stop distanceHow far your safety exit is from the price where you entered the trade.
35. stop-lossA safety exit you choose before a trade, so a small loss cannot grow into a big one.
36. take-profitA plan, or an order, to close a winning trade automatically once price reaches your goal.
37. targetThe price where you plan to take your profit if the trade goes your way.
38. trailing stopA safety exit that moves up behind your winning trade, locking in more profit as price climbs.
39. weekly loss limitA rule that makes you stop trading for the rest of the week once you have lost a set amount.
40. win rateHow often your trades win, like 4 wins out of every 10 trades.