Trading glossary
Plain-words definitions of the trading math, jargon and tax terms Indian traders meet. Every entry has a worked example.
Trading Math
Expectancy
The average rupees you make (or lose) per trade across many trades. Positive expectancy = your system has an edge.
R-Multiple
A trade’s outcome measured in units of initial risk. +3R means a winner three times the size of the planned stop. −1R is a textbook loss.
Profit Factor
Total rupees won divided by total rupees lost. Above 1.0 means profitable. Above 1.5 means healthy. Above 2.0 means excellent.
Win Rate
Percentage of trades that close in profit. Useful only when paired with avg win and avg loss. Alone, it does not show whether you make money.
Drawdown
The peak-to-trough decline in your account equity, as a percentage. Returns make headlines, but drawdown decides whether you survive.
Sharpe Ratio
Excess return per unit of volatility. The standard way to compare two strategies. It rewards smooth equity curves, but doesn’t distinguish good volatility from bad.
Position Sizing
Deciding how big a trade to take. Most pros risk 0.5-2% of account per trade and size the position so a stop-loss hit equals exactly that.
Expiry
The last day a futures or options contract trades. After it the contract settles. NSE Nifty expires on Tuesday, BSE Sensex on Thursday; a holiday moves expiry to the previous trading day.
Indian Tax & Charges
STT (Securities Transaction Tax)
A small percentage the government collects on every trade. Equity delivery charges both sides; intraday and futures only the sell side; options charge sell premium.
ITR-3
The income-tax return form for individuals with business or profession income. Any F&O or intraday equity trader files this, even with one trade in the year.
Speculative vs Non-Speculative Business Income
Equity intraday is speculative; F&O is non-speculative. The classification controls how losses can be set off and how long they can be carried forward.
F&O Taxation
F&O trading is non-speculative business income (Section 43(5)). Filed via ITR-3, taxed at slab, expenses deductible, losses carry forward 8 years.
Schedule VDA (Crypto Tax)
India taxes crypto under Section 115BBH: flat 30% on gains, no loss set-off against anything, no carry-forward, 1% TDS on every transaction. Reported in Schedule VDA of ITR.