Crypto Risk Glossary
Risk has a vocabulary, and most blow-ups trace back to a term someone never quite understood. Here are the dozen that matter most — defined in plain English, each linked to a free calculator so you can put the number to work instead of just nodding at it.
The terms that matter
- Position size
- The total value of a trade, chosen so a loss at your stop costs only your fixed risk (e.g. 1% of the account). It is an output of risk and stop distance, never a guess. → Position size calculator
- Stop-loss & take-profit
- The price where your idea is wrong (stop) and where you bank the win (take-profit). Their ratio is your reward-to-risk. → TP/SL calculator
- Leverage
- Borrowed exposure. It multiplies position size, profit, loss and how close liquidation sits — never your edge. The same trade at 1× and 25× carries the same dollar risk but a very different liquidation distance. → Leverage comparison
- Liquidation
- The forced closure of a leveraged position when your margin can no longer cover the loss. Higher leverage moves the liquidation price closer to entry. → Liquidation calculator
- Funding rate
- A periodic payment between long and short traders on perpetual futures (typically every 8h). It is a holding cost, not an exchange fee, and only charged if you hold across settlement. → Funding rate calculator
- Drawdown
- The drop from a peak in your equity. Recovery is asymmetric: a 50% drawdown needs a 100% gain to break even, a 90% drawdown needs 900%. → Drawdown recovery
- Win rate
- The share of trades that are winners. Useful only alongside reward-to-risk — a high win rate with tiny wins and rare huge losses can still lose money. → Expectancy calculator
- Expectancy
- The average profit or loss per trade:
win% × avg win − loss% × avg loss. Positive means the system makes money over many trades; zero or negative means no position size can save it. → Expectancy calculator - Profit factor
- Gross profit divided by gross loss across all trades. Above 1.0 is profitable; 1.5 means you make $1.50 for every $1 lost. Another view of the same edge expectancy measures. → Expectancy calculator
- Kelly criterion
- The bet size that grows capital fastest given your edge and odds. Full Kelly is volatile and assumes perfect stats, so most traders use half or quarter Kelly. → Kelly calculator
- Risk of ruin
- The probability your account falls to a ruin level before your edge plays out. It rises sharply with bet size — the main lever you control. → Risk of ruin calculator
- Volatility & ATR
- How much price moves. Historical volatility (annualised σ) and ATR (average true range) size your stops to the noise of the asset. Both are historical and spike in crashes. → Volatility / ATR
- Correlation
- How closely two assets move together. Three "separate" 1% positions in correlated coins is closer to one 3% bet — and in a crash crypto correlations rush toward 1. → Correlation matrix
- RSI
- A momentum oscillator (0–100) flagging overbought (>70) or oversold (<30) conditions. A confirmation tool, not a buy/sell button — in strong trends it stays stretched for a long time. → RSI screener
Frequently Asked Questions
Where should a beginner start?
With position size, stop-loss and the 1% idea behind expectancy. Liquidation and funding only matter once you use leverage; volatility, correlation and RSI refine decisions later.
Why link every term to a calculator?
Because a definition you can compute is one you actually understand. Each tool runs in your browser, free, with no sign-up — so you can plug in your own numbers immediately.
Is this glossary financial advice?
No. These are educational definitions and tools for informational purposes only. They explain risk; they do not tell you what to trade.
