Risk Reward Calculator
Learn how to calculate risk reward ratio and why it matters more than win rate
What is Risk Reward Ratio?
Risk reward ratio (R:R) compares your potential loss to your potential gain on a trade. It's one of the most important concepts in trading because it determines whether your strategy can be profitable long-term, regardless of your win rate.
A 1:2 risk reward ratio means you risk $1 to potentially make $2. With this ratio, you only need to win 33% of your trades to break even.
The Risk Reward Formula
R:R = (Target - Entry) / (Entry - Stop Loss)
Target = Your take profit price
Entry = Your entry price
Stop Loss = Your stop loss price
Risk Reward Examples
Example 1: Long Trade (Buying)
Trade Setup:
- Entry: $100.00
- Stop Loss: $95.00
- Target: $115.00
Calculation:
Risk = $100 - $95 = $5
Reward = $115 - $100 = $15
R:R = $15 / $5
= 1:3
Example 2: Short Trade (Selling)
Trade Setup:
- Entry: $50.00
- Stop Loss: $52.00
- Target: $44.00
Calculation:
Risk = $52 - $50 = $2
Reward = $50 - $44 = $6
R:R = $6 / $2
= 1:3
Win Rate Required by R:R Ratio
The beauty of good risk reward is that you don't need to win most of your trades to be profitable:
| Risk:Reward | Break-Even Win Rate | Profit at 50% Win Rate |
|---|---|---|
| 1:1 | 50% | Break even |
| 1:2 | 33.3% | +0.5R per trade |
| 1:3 | 25% | +1R per trade |
| 1:4 | 20% | +1.5R per trade |
| 1:5 | 16.7% | +2R per trade |
Why Risk Reward Matters More Than Win Rate
Many traders obsess over win rate, but risk reward is far more important. Consider two traders:
Trader A: 70% Win Rate, 1:0.5 R:R
Wins $50, loses $100
10 trades: 7 wins x $50 = $350
10 trades: 3 losses x $100 = -$300
Net: +$50 (marginal)
Trader B: 40% Win Rate, 1:3 R:R
Wins $300, loses $100
10 trades: 4 wins x $300 = $1,200
10 trades: 6 losses x $100 = -$600
Net: +$600 (profitable)
Trader B makes 12x more profit despite losing more trades. This is the power of risk reward.
Minimum Risk Reward Guidelines
Frequently Asked Questions
What is a good risk reward ratio?
A minimum of 1:2 risk reward ratio is recommended. This means for every $1 risked, you aim to make $2. With a 1:2 ratio, you only need to win 33% of your trades to break even.
How do you calculate risk reward ratio?
Risk Reward Ratio = (Target Price - Entry Price) / (Entry Price - Stop Loss). For example, if you buy at $100 with a stop at $95 and target of $115: (115-100)/(100-95) = 15/5 = 1:3 R:R.
What win rate do I need for a 1:2 risk reward?
With a 1:2 risk reward ratio, you need to win just 33.3% of your trades to break even. Anything above 33.3% win rate will be profitable.
Is 1:1 risk reward good?
A 1:1 risk reward requires a win rate above 50% to be profitable after fees and slippage. Most professional traders aim for at least 1:2 to give themselves more margin for error.
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Risk Disclosure: Trading involves substantial risk of loss and is not suitable for all investors. This content is for educational purposes only and does not constitute financial advice.
Last updated: December 2025