The risk/reward ratio, explained
The risk/reward ratio compares what you're risking to what you're aiming to make. It's half of the profitability equation — the other half is win rate — and together they decide whether a strategy makes money.
The formula
Reward/Risk = (target − entry) ÷ (entry − stop)
The win rate each ratio needs
Breakeven win rate = 1 ÷ (1 + reward/risk):
- • 1:1 → need > 50% to profit
- • 1:2 → need > 33%
- • 1:3 → need > 25%
That's why a good ratio lets you be wrong more than half the time and still win — it feeds directly into your expectancy.
Check a trade's ratio before you take it:
Risk/reward calculatorFurther reading
What Is a Good Average Win/Loss Ratio?
Your average win divided by your average loss is the payoff ratio. There is no single good number. It only makes sense paired with your win rate, and chasing a bigger one is a common way to trade worse.
What Is a Good Win Rate for Swing Trading?
There is no single good win rate for swing trading. It depends on your reward-to-risk. Here is how to tell whether your win rate is actually good for the way you trade.
Frequently asked questions
How do you calculate risk/reward ratio?
Risk/reward = (target − entry) ÷ (entry − stop). If you risk $1 to make $2, that's a 1:2 risk/reward (often written as a reward-to-risk of 2R).
What is a good risk/reward ratio?
Many traders look for at least 1:2 (risk 1 to make 2), but the 'good' ratio depends on win rate. A high-win-rate scalper can profit at 1:1; a swing trader with a 40% win rate needs better than 1:1.5.
What win rate do I need for a given ratio?
Breakeven win rate = 1 ÷ (1 + reward/risk). For 1:1 you need >50%; for 1:2 you need >33%; for 1:3 you need >25%. Anything above breakeven is profitable.
Is risk/reward the same as R-multiple?
They're related. Risk/reward is the planned ratio before the trade; R-multiple is the realized result in units of risk after it closes.