What is the risk-reward ratio?
In one line: The risk-reward ratio compares how much you could lose on a trade with how much you aim to gain. Risking $1 to aim for $2 is 2-to-1.
A simple example
- Entry: $20.00
- Stop loss: $19.50 — risk of $0.50 a share
- Target: $21.25 — reward of $1.25 a share
$1.25 ÷ $0.50 = 2.5. That's a 2.5-to-1 risk-reward ratio. Check yours with the risk-reward calculator.
The break-even math
The ratio tells you how often you'd need to win just to break even, before costs:
| Ratio | Wins needed to break even |
|---|---|
| 1-to-1 | 50% |
| 2-to-1 | about 33% |
| 3-to-1 | 25% |
The formula is 1 ÷ (1 + ratio). At 2-to-1, that's 1 ÷ 3 ≈ 33%. That's a math example, not a promise — it ignores fees, slippage and how well you follow the plan.
Why it matters
The ratio and your win rate only make sense together. Bigger targets mean you can be wrong more often. Smaller targets mean you have to be right much more often. Our expectancy calculator puts the two side by side.
It also forces a good habit: you can't work out the ratio until you've decided both your stop and your target — before you're in the trade.
A common mistake
Stretching the target to make the numbers look nice. A trader writes a 5-to-1 target, but there's a clear ceiling of resistance halfway there. The ratio looks great on paper and rarely happens on the chart.
Set the stop where the chart says you're wrong. Set the target where the chart says price may stall. Then read the ratio. If it's under about 2-to-1, many traders just skip the trade.
The full method is in our guide to the risk-reward ratio.
Questions
What is a good risk-reward ratio?
Many traders look for at least 2-to-1. What matters is that it fits the chart and your real win rate.
Is risk-reward the same as reward-to-risk?
People use both names for the same idea. Just check which number comes first — "2-to-1" here means reward is twice the risk.
Should I move my target once in a trade?
Moving it further out on hope changes the plan you checked. Many traders decide the rules for any change before the trade begins.
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