Risk/Reward Ratio Calculator

How to calculate risk/reward

Risk/reward compares what you stand to lose against what you stand to make on a single trade. Two distances decide it:

• Risk — the distance from your entry to your stop-loss.
• Reward — the distance from your entry to your take-profit.

Divide the reward by the risk and you have your ratio. A stop 20 pips away and a target 60 pips away is a 1:3— you're risking 1 to make 3. The calculator measures both distances in your instrument's pips or points and does the division for you, so it works the same on EURUSD as it does on NAS100 or gold.

Why risk/reward matters — and the break-even win rate

The ratio is only half the picture. The number that actually decides whether you make money is the win rate it demands. At 1:1 you need to win more than half your trades just to break even. At 1:2 that drops to 33%. At 1:3, just 25%. That's the real power of a high reward-to-risk — it lets you be wrong more often than you're right and still come out ahead. The calculator shows the break-even win rate for every ratio, so you always know the number you're trying to beat.

The trap is chasing ratios you can't actually hit. A 1:10 target that never fills isn't an edge — it's a wish. A realistic 1:2 you complete consistently beats a fantasy 1:5 that stops you out on the way. The only way to know your real win rate at a given ratio is to test the setup on real history.

Break-even win rate for every ratio

The formula is 1 / (1 + R), where R is the reward multiple. This is the number your strategy has to beat — not a target, a floor.

Those are clean numbers with no costs in them. Spread and commission are a fixed charge against a variable reward, so they punish tight stops hardest — a 10-pip stop carrying a 1.5-pip round-trip cost is really 11.5 pips of risk against a 15-pip reward, a 1:1.3 rather than the 1:1.5 you planned. Add your own costs before you trust any of these thresholds.

Why a higher ratio is not automatically better

This is the part the ratio hides, and it is worth being blunt about: win rate and reward:risk move against each other.Push a target further away and price reaches it less often. You cannot improve one without paying in the other, so "improving your R:R" by widening targets is not an improvement at all — it is a trade, and it can easily be a losing one.

Two setups, same market, same entries — only the target moved:

• Target at 1.5R: hits 55% of the time. Expectancy = (0.55 × 1.5) − 0.45 = +0.375R per trade.
• Target at 5R: hits 12% of the time. Expectancy = (0.12 × 5) − 0.88 = −0.28R per trade.

The second one has the ratio every trading course tells you to want, and it loses money. The ratio on its own is not a metric. It is one half of a pair, and it is meaningless without the other half beside it.

Expectancy: the number the ratio is standing in for

What you actually want is expectancy — the average result per trade, in R:

Expectancy = (win rate × reward) − (loss rate × 1)

A 40% win rate at 1:2 gives (0.40 × 2) − (0.60 × 1) = +0.20R per trade. Over 200 trades at 1% risk that is roughly 40% of the account, before compounding — and it is a perfectly ordinary edge, not a spectacular one.

Expectancy is the better metric precisely because it collapses both halves into one number, so you cannot flatter yourself by optimising the ratio while the win rate quietly collapses. The catch is that a measured expectancy is an estimate with error bars around it, and a small sample can show +0.2R when the truth is negative. The backtest sample size calculator puts a confidence interval on it and tells you how many trades you need before the result means anything.

Where the stop goes decides the ratio

A common way to manufacture a flattering ratio is to tighten the stop until the numbers look good. It works on the spreadsheet and fails on the chart, because a stop that sits inside normal noise gets hit by noise.

The stop belongs at the price that says the idea was wrong — below the sweep, beyond the invalidation level, wherever your rules put it. That distance is an input you do not get to choose. What you choose afterwards is the size, so that the loss at that stop is the amount you intended to risk. The position size calculator does that inversion; the pip calculator converts the distance into money if you want to see it in cash rather than R.

And take the ratio the chart offers rather than imposing one. If the nearest opposing level is at 1.7R, a mechanical 1:3 target is asking price to travel straight through it. Use your minimum ratio as a filter for skipping trades, not as a target you force onto every chart.

Planned R:R and realised R:R are different numbers

Almost nobody measures the gap, and it is usually where the edge goes. Your planned ratio is what you set at entry. Your realised ratio is what you actually collected after moving a stop to break-even, taking something off at 1R, or closing early because it looked shaky.

A journal of 1:3 setups that were consistently closed near 1.4R is a 1:1.4 strategy with a 1:3 story attached — and every break-even win rate on this page is being computed against the wrong number. Log both (what to log in a trading journal covers the fields), and if they diverge, the fix is usually the exit rules rather than the entry.

Frequently asked questions