Risk / reward
Risk / reward
What you aim for against what you risk, from three prices.
Ratio
1 : 2.00
Win rate to break even
33.3 %
A trade is judged on two distances: the one between you and your stop, and the one between you and your target. Their ratio says how much you are aiming for per unit risked. It is the number that makes two completely different trades comparable.
Its real value is not the ratio itself, it is what it implies about your win rate. A 1:3 ratio holds with one win in four. A 1:0.5 ratio demands two wins in three. The same trader, with the same method, does not face the same requirement depending on the distance they give themselves.
The formula
Ratio = distance to target ÷ distance to stop. The breakeven win rate follows: 1 ÷ (1 + ratio). At 1:2 that gives 1 ÷ 3, so 33.3% wins to break even.
A worked example
Entry at 1.1000, stop at 1.0950, target at 1.1100. Risk is 50 points, intended gain 100: the ratio is 1:2. Breakeven falls to 33.3% · one win in three covers your costs, before commissions.
What each ratio demands
The minimum win rate to break even, before fees.
| Ratio | Target gain per $100 risked | Minimum win rate |
|---|---|---|
| 1:0.5 | $50 | 66.7% |
| 1:1 | $100 | 50.0% |
| 1:1.5 | $150 | 40.0% |
| 1:2 | $200 | 33.3% |
| 1:3 | $300 | 25.0% |
| 1:4 | $400 | 20.0% |
| 1:5 | $500 | 16.7% |
What this number does not tell you
It ignores fees, swap and slippage · your real threshold is therefore always a little higher than the one shown. And above all, a good ratio does not make a trade likely: moving your target further away improves the number without making the price any more inclined to go there. The ratio only measures what you give yourself, not what the market owes you.
The classic mistake
Tightening the stop to flatter the ratio. The number goes up, and so does the chance of being stopped out before the move. A 1:5 ratio obtained by pinning the stop to the entry price is not a better opportunity, it is the same opportunity with less room.
Frequently asked questions
What is a good risk/reward ratio?
There is no universal answer · it depends entirely on your win rate. A 1:1 ratio works for someone winning three times in five, a 1:3 ratio for someone winning one in three. Both can hold, neither holds on its own.
Why does the result show a dash?
Because your stop is at the same price as your entry. Risk is then zero and a ratio cannot be computed · showing zero would suggest a position with no danger, which would be false.
Does the ratio account for fees?
No. Commissions and swap reduce the gain and increase the loss · your real breakeven is therefore always a little above the one shown here. On short, frequent trades the gap is not negligible.
Should I aim for the highest possible ratio?
A higher ratio needs fewer wins, but it is usually obtained by aiming further · and the further the target, the less often price reaches it. The two figures offset each other: their combination decides, never one of them alone.
How do I check this on my real trades?
By comparing the ratio you planned with the one you got, trade by trade. The gap between the two says far more about how you trade than the planned ratio on its own.
See also
Position size
Work out how many lots to open from your account size, risk percentage and stop loss distance in pips. Free, no sign-up, runs entirely in your browser.
Profit
Work out the profit or loss of a forex, index or metals trade from the entry price, the exit price and the lot size. Free in-browser calculator, no sign-up.
Pip value
Work out what one pip is worth for any currency pair, based on your lot size and account currency. Free, instant, and everything runs in your browser.