What the risk/reward ratio tells you
The reward-to-risk ratio compares what a trade stands to make at its target with what it loses at its stop. A ratio of 1:3 means the target is three times farther from the entry than the stop. On its own the number says nothing about whether a trade is good; paired with your win rate, it tells you whether a strategy can pay for its losing trades.
How to use the calculator
Enter the planned entry, stop-loss and take-profit prices. The direction is detected automatically — a stop below the entry means a long, a stop above means a short — or you can force it. The panel returns the ratio, the risk and reward per unit in price terms, each distance as a percentage of the entry, and the break-even win rate. If the stop and the target sit on the same side of the entry, the result shows a dash, because the trade cannot be valid.
The formulas
risk = |entry − stop|
reward = |target − entry|
R:R = reward ÷ risk
break-even win rate = 1 ÷ (1 + R:R)
The break-even line follows from expectancy: with a win rate W, you break even when W × reward = (1 − W) × risk.
Worked example
Long EUR/USD at 1.1000, stop at 1.0950, target at 1.1150. Risk is 0.0050 (50 pips) and reward 0.0150 (150 pips). R:R = 150 ÷ 50 = 3.00, written 1:3. The break-even win rate is 1 ÷ (1 + 3) = 25%: if fewer than one trade in four reaches its target, the setup loses money over time, before costs.
A short: sell at 1.2700, stop at 1.2740, target at 1.2640. Risk is 40 pips, reward 60 pips, R:R = 1.5, and you need to win more than 40% of the time.
| Reward-to-risk | Break-even win rate |
|---|---|
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33.3% |
| 1:3 | 25% |
Common mistakes
- Chasing large ratios. A distant target is reached less often. A 1:5 setup that wins 12% of the time loses money; a 1:1.2 setup that wins 55% of the time makes money.
- Moving the stop to improve the ratio. A tighter stop raises the ratio on paper but may sit inside normal noise and get hit more often.
- Ignoring costs. Spread and commission add to the risk and subtract from the reward. On short-term trades this can move the break-even win rate by several points.
- Judging single trades. The ratio only becomes meaningful across a large sample with a known win rate — combine it with the expectancy calculator.