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 calculatorFrequently 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.