What the risk-reward ratio is
The risk-reward ratio (R:R) compares how much you could lose on a trade with how much you aim to gain.
- Risk is the distance from your entry to your stop loss, turned into money for your position size.
- Reward is the distance from your entry to your take profit, turned into money for the same position size.
Some traders write it as risk-to-reward and others as reward-to-risk, so the same trade can be shown either way. Always check which way a source uses. On this page, "a higher R:R" means the planned reward is larger compared with the risk.
Many traders also use R as a unit. R is the amount you lose if the stop loss is hit. A result of "plus R" means you made as much as you risked. "Minus R" means you lost your planned risk. Using R lets you compare trades of different sizes and on different instruments.
How to measure it on one trade
- Decide the entry, the stop loss and the take profit before you open the trade.
- Measure both distances in pips or points.
- Turn them into money for your lot size, including spread and commission.
- Compare reward with risk.
The profit calculator shows the result of a closed trade in money and pips, so you can check what a stop loss or take profit at a given price would mean for your account:
Fill in the empty fields to see the result.
Placing the stop loss is a separate decision from choosing the ratio. See stop loss placement and position sizing.
Why R:R means nothing without win rate
A high R:R on its own does not make a method profitable. A low R:R on its own does not make it lose money. What matters is the R:R together with how often trades reach the target before the stop.
- With a wide target and a tight stop, the reward looks large, but price often hits the stop first. The win rate tends to fall.
- With a close target and a wide stop, more trades may reach the target, but each loss costs more than each win brings in.
The two numbers pull against each other. Moving the take profit further away does not create an edge. It changes the mix of wins and losses. The result over many trades depends on both, which is what trading expectancy measures:
Expectancy = (win rate × average win) − (loss rate × average loss)
If expectancy is not positive after costs, no choice of ratio fixes it. A positive expectancy in past trades also does not guarantee future results, because market conditions change.
Break-even win rate
The break-even win rate is the share of trades you must win so that wins and losses cancel out. Before costs, the formula is:
Break-even win rate = risk ÷ (risk + reward)
The larger the reward compared with the risk, the lower the win rate you need to break even. The table shows the direction of the relationship. Use the calculator below for exact figures at your own ratio.
| Planned reward compared with risk | Break-even win rate needed | What it usually means in practice |
|---|---|---|
| Reward smaller than risk | Above half of all trades | Most trades must win; one loss can wipe out several wins |
| Reward equal to risk | Half of all trades, before costs | Costs push the real break-even point above half |
| Reward larger than risk | Below half of all trades | Fewer wins are needed, but targets are hit less often |
| Reward much larger than risk | Well below half | Long losing streaks are normal and hard to sit through |
Costs move the break-even point
The formula above ignores costs. In real trading, every trade pays a spread, and some accounts also charge a commission. Positions held overnight may be charged or credited a swap (see swap fees). Slippage can make losses bigger than planned, especially around news and gaps.
Costs take money from every trade, winners and losers alike. This has two effects:
- The actual reward on a win is smaller than the distance to the take profit.
- The actual loss on a losing trade is larger than the distance to the stop loss.
So the real break-even win rate is higher than the formula suggests. The effect is strongest on short-term trades with tight stops, where the spread is a large part of the risk.
The break-even calculator works out the win rate needed at a given reward-to-risk ratio, with costs included:
Fill in the empty fields to see the result.
| Reward to risk | Without costs | With your costs |
|---|---|---|
| 1 : 0.5 | 66.7% | 66.7% |
| 1 : 1 | 50% | 50% |
| 1 : 1.5 | 40% | 40% |
| 1 : 2 | 33.3% | 33.3% |
| 1 : 2.5 | 28.6% | 28.6% |
| 1 : 3 | 25% | 25% |
| 1 : 4 | 20% | 20% |
| 1 : 5 | 16.7% | 16.7% |
Break-even win rate = 1 / (1 + R); with costs c per trade (in R): (1 + c) / (1 + R). Above it the arithmetic is positive; it says nothing about whether a method reaches it.
For a longer explanation, see break-even win rate.
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Is there a best risk-reward ratio for forex?
No single ratio suits every trader, instrument or method. A ratio only makes sense next to the win rate that the method actually produces, after costs. Claims that a fixed ratio "always works" ignore this.
Questions that matter more than the ratio itself:
- Does the target make sense for the market? A target far beyond the normal daily range of a pair may rarely be reached.
- Is the stop placed where the trade idea is wrong, or just where it gives a nice-looking ratio? A stop that is too tight to fit normal price noise turns into frequent small losses.
- What does your record show? Your win rate at a given ratio comes from your own trades, not from a rule of thumb. Keep a trading journal and record planned R:R, actual result in R, and costs.
- Can you handle the losing streaks? Low win rate methods produce long runs of losses. See risk of ruin and drawdown.
Common mistakes
- Moving the stop loss to keep a trade open. This changes the risk after entry, so the planned ratio no longer means anything.
- Taking profit early but letting losses run. The real ratio becomes worse than the plan, even if each trade "looked good" at entry.
- Ignoring costs on small targets.
- Judging a method from a few trades. Win rate needs a large sample before it says anything useful.
- Confusing R:R with position size. The ratio says nothing about how much of your account is at risk. That is set by lot size and stop distance; see risk per trade.
Risk warning
Trading forex and CFDs with leverage can lose money fast, including more than you planned if prices gap past your stop. A good-looking risk-reward ratio does not protect you from losses and does not make a method profitable. Test any approach on a demo account first, and read the risk management section before trading real money.
Frequently asked questions
What is the risk-reward ratio in simple words?
It compares how much you can lose on a trade, up to your stop loss, with how much you aim to gain, up to your take profit, for the same position size.
Is a higher risk-reward ratio always better?
No. A higher ratio lowers the win rate you need to break even, but it usually also lowers the win rate you actually get. Only the combination, after costs, shows whether a method has an edge.
How do I calculate the break-even win rate?
Divide the risk by the sum of risk and reward. For a figure that includes spread and commission, use the break-even win rate calculator on this page.
Why is my real result worse than my planned ratio?
Spread, commission, swap and slippage reduce wins and enlarge losses. Closing winners early or widening stops also changes the ratio you actually get.
Does R:R tell me how much to risk per trade?
No. R:R compares reward with risk. How much money you risk depends on your lot size and stop distance. See position sizing.
Where can I find other trading calculators?
All tools are collected on the calculators page.