Risk-Reward Calculator

The risk-reward ratio is a fundamental concept in trading that compares the potential loss (risk) to the potential profit (reward) on a trade.

Why Risk-Reward Matters

A good risk-reward ratio helps ensure that your winning trades generate enough profit to offset losses from losing trades. Even with a 50% win rate, a 2:1 ratio means you'll be profitable over time.

Ideal Risk-Reward Ratios

• 1:1 Ratio: Equal risk and reward (minimum acceptable)
• 1:2 Ratio: Good ratio (professional standard)
• 1:3+ Ratio: Excellent ratio (high probability setups)

Example

If you risk $200 on a trade with a 1:2 ratio, your potential profit is $400. Over 10 trades with a 50% win rate: 5 wins × $400 = $2,000 profit, 5 losses × $200 = $1,000 loss. Net profit: $1,000.

Key Principles

• Always calculate risk-reward before entering a trade
• Aim for at least a 1:2 ratio for professional trading
• Adjust stop-loss or take-profit to improve the ratio
• Never enter a trade with a poor risk-reward ratio