Core terms
Account equityAccount balance plus or minus unrealized profit and loss. Some loss rules are measured from equity rather than closed balance. Drawdown
A decline from a prior equity or balance peak, expressed in money or as a percentage. Edge
A repeatable advantage that produces positive expected value after realistic costs and execution effects. An edge is a property of a complete process, not a guarantee on an individual trade. Expectancy
The average amount a system is expected to win or lose per trade over a large sample: expectancy = (win probability × average win) − (loss probability × average loss) Maximum drawdown
The largest peak-to-trough decline observed in a particular history or simulation. An observed maximum is not a guaranteed future ceiling. Position sizing
The process of translating an allowed monetary loss and an invalidation distance into the number of shares, contracts, lots, or units to trade. Risk of ruin
The probability of reaching a defined failure threshold before a target or over a specified horizon. The estimate depends on assumptions about edge, variance, dependence, costs, and sizing. Risk-reward ratio
A comparison between the amount at risk and the potential gain. It does not show win probability, costs, or expectancy by itself. R-multiple
Profit or loss divided by the trade’s initial planned risk. A full planned loss is −1R; a profit twice the initial risk is +2R.
Prop-trading terms
Daily loss limitThe maximum permitted loss during a firm’s defined rule day. Calculation may include realized P&L, unrealized P&L, commissions, and fees. Maximum loss limit
The overall loss boundary for an account. It can be static or trail a balance or equity high-water mark. Trailing drawdown
A loss threshold that moves upward when the account reaches new highs. Its update frequency and stopping behavior depend on the rule set. Loss buffer
The remaining distance between current account value and a breach threshold. It is more relevant to immediate risk capacity than nominal account size. Personal daily stop
A trader-defined limit placed inside the firm’s hard boundary to preserve a safety margin.
Exposure terms
Aggregate exposureRisk across all open positions and pending orders considered together. Correlation
A statistical description of how returns have moved together over a sample. Correlation can change and does not fully describe joint tail risk. One-side betting
Multiple positions that depend on the same directional outcome, even when they use different instruments. Risk per trade idea (RPTI)
The maximum planned loss across every position expressing the same thesis, catalyst, or market factor. Stop-based risk
Estimated loss between entry and stop, multiplied by position size and adjusted for costs. Actual loss can be larger because of gaps or slippage.
Execution terms
SlippageThe difference between an expected execution price and the price actually received. Hard limit
A boundary enforced by a platform, firm, or automated control rather than left to discretionary judgment. Risk override
Any manual action that weakens, disables, or bypasses a predefined control.
What is expectancy?
See the formula in worked examples.
Prop risk management
Apply these terms to funded-account constraints.
Position sizing
Convert allowed loss into trade size.
Editorial standards
See how the content is developed and sourced.