How to use the risk reward ratio calculator
- Enter your entry price, the level where you buy or sell.
- Enter your stop loss, the level where the trade is wrong. A stop below the entry makes a long trade and a stop above it a short.
- Enter your target, the level where you take profit.
- Optionally add your win rate to see what the ratio earns on average at the rate you really win.
The calculator shows the ratio as 1 to something, the break-even win rate, and a ladder drawing the trade so you see the proportions: the target block should look as many times the stop block as the ratio says. A curve shows the win rate that every ratio needs, with your own win rate drawn across it.
The risk reward ratio formula
risk = |entry − stop|
reward = |target − entry|
reward to risk = reward ÷ risk
A ratio of 3 is written 1:3 and means the trade can make three units for each unit it can lose. Traders also say the trade is worth 3R, where one R is the amount risked. The ratio compares only the distances you planned. It says nothing about how likely the target is to be reached, which is why the win rate belongs beside it.
The break-even win rate
Every ratio has a win rate at which a series of trades neither gains nor loses. It is
break-even win rate = 1 ÷ (1 + reward to risk)
At 1:1 you must win half the time. At 1:2 a third of the time is enough. At 1:3 a quarter of your trades must win. The calculator draws this curve and marks your trade on it. A win rate above the curve earns money over many trades and one below loses it. Fees, spreads and slippage move the curve up, so a trade that breaks even on paper loses a little in practice.
Worked example
You buy EUR/USD at 1.0850, put the stop at 1.0820 and the target at 1.0940.
At a 40% win rate the trade pays 0.60R on average. Risking $100 per trade, that is $60 per trade after many trades. The expectancy calculator extends this to a full set of results, with profit factor and a projection.
What is a good risk reward ratio?
No ratio is good on its own. A 1:3 ratio with a 20% win rate loses money, and 1:1 with a 60% win rate makes it. The two numbers work together. Scalpers often win more than half their trades with ratios under 1:1, while trend followers may win a third of their trades and make it back with ratios of 1:3 or more. Judge a ratio by whether your real win rate on that setup sits above its break-even rate with room to spare.
A larger ratio is also not free. A target far from the entry is reached less often, so stretching the target to improve the ratio usually lowers the win rate. The skill is to place the target at a level the price can reach and the stop where the idea fails, and then see what the ratio is, not to choose a ratio first.
Common risk reward mistakes
- Setting the target to hit a ratio. A target placed where the price has no reason to go gives a pretty ratio and no profit.
- Ignoring the win rate. A high ratio means nothing without the rate at which you reach it.
- Moving the stop after entry. A wider stop shrinks the real ratio. See moving the stop.
- Leaving out costs. Spread and commission add to risk and subtract from reward.
- Judging one trade. The ratio works over many trades. A single result tells you very little.
What the calculator does not know
The ratio is a plan, not a result. Partial exits, trailing stops and gaps change what a trade pays, and the calculator treats your target and stop as the only two outcomes. Use it to compare setups before you take them, then measure the ratio you actually achieve in your journal. Nothing here is investment advice.
Frequently asked questions
What is the risk reward ratio?
It is the potential profit of a trade divided by its potential loss. If you risk 30 pips to make 90, the ratio is 3, written 1:3.
How do I calculate risk reward ratio?
Subtract the stop from the entry to get the risk, subtract the entry from the target to get the reward, and divide the reward by the risk. With an entry of 1.0850, a stop of 1.0820 and a target of 1.0940, the ratio is 0.0090 ÷ 0.0030 = 3.
What win rate do I need for a 1:2 risk reward ratio?
One third, or 33.3%, to break even before costs. Anything above that makes money over many trades and anything below loses it.
Is a 1:3 risk reward ratio good?
It can be. It only needs a win rate above 25% to break even, but it is only useful if your targets are reached often enough. A target that the price rarely reaches turns a good ratio into a losing system.
Should I always aim for a higher risk reward ratio?
No. A higher ratio usually means a more distant target and a lower win rate. The best ratio is the one that, with your real win rate, gives the highest average result per trade.
What is the difference between risk reward and R-multiple?
The risk reward ratio is the plan: reward over risk before you trade. The R-multiple is the outcome: the result divided by the amount risked. A trade planned at 1:3 that exits at 1.5 times the risk is a 1.5R trade.
Does risk reward work for short trades?
Yes. Put the stop above the entry and the target below it. The calculator reads the side from the stop and checks that the target sits on the profit side.
How do costs change the break-even win rate?
Spread and commission raise the risk and lower the reward, so the true break-even win rate is higher than the formula says. A tight target suffers most because the costs are a larger part of the distance.