How to calculate risk/reward ratio
Your risk/reward ratio compares how much you stand to make against how much you stand to lose on a single trade. For a long position the formula is:
R:R = (Target − Entry) ÷ (Entry − Stop)
For a short position the geometry flips — your target sits below entry and your stop above — so it becomes (Entry − Target) ÷ (Stop − Entry). The calculator infers the direction automatically from where your target lands relative to entry, and turns the ratio into the breakeven win rate you need: 1 ÷ (1 + ratio) × 100.
Worked example
You enter long at $100, set a stop at $95
and a target at $110.
Risk = $100 − $95 = $5. Reward = $110 − $100 = $10.
Ratio = $10 ÷ $5 = 2 : 1.
Breakeven win rate = 1 ÷ (1 + 2) = 33.33%.
What is a good risk/reward ratio
A ratio of 2 : 1 or better is a common benchmark — it means a single winner covers two losers, so you can be profitable while winning fewer than half your trades. Pushing the ratio higher (3 : 1, 4 : 1) lowers the win rate you need but usually means a wider, less-frequently-hit target. There is no universally correct number: the right ratio is the one your strategy can actually achieve consistently, after fees and slippage.
Breakeven win rate by ratio
The reason the ratio matters is that it sets the minimum win rate you need to stop losing money. Win more often than the figure below and you are profitable on average, before costs:
| Risk / reward ratio | Breakeven win rate | What it means |
|---|---|---|
| 1 : 1 | 50.0% | Reward equals risk — you must win half your trades. |
| 1.5 : 1 | 40.0% | A modest edge buys you a little slack on win rate. |
| 2 : 1 | 33.3% | One winner pays for two losers. |
| 3 : 1 | 25.0% | Profitable winning only 1 trade in 4. |
| 5 : 1 | 16.7% | Wide target — usually hit far less often. |
Each row uses breakeven% = 1 ÷ (1 + ratio) × 100. Once you know the
ratio, you can size the trade with the
position size calculator, and use the
stop loss / take profit calculator
to convert a target R-multiple straight into exact stop and target prices.
Long vs short: which side is which
On a long, your stop sits below entry and your target above, so risk is entry − stop and reward is target − entry. On a short the geometry is mirrored: the stop is above entry and the target below. This calculator reads the direction automatically from where your target lands relative to entry, so you never pick a side — just enter the three prices. If you only know a percentage move rather than exact prices, the stop loss / take profit calculator turns a stop % and a target % into the same ratio.
Frequently asked questions
- How do you calculate the risk/reward ratio?
- Divide your potential reward by your potential risk. For a long trade: (target − entry) ÷ (entry − stop). If a trade risks $5 to make $10, the ratio is 10 ÷ 5 = 2, written 2 : 1. The calculator infers direction automatically from where your target sits relative to entry.
- What is a good risk/reward ratio?
- Many traders look for at least 2 : 1, meaning the potential reward is twice the risk. A higher ratio lets you be profitable even with a sub-50% win rate, but it usually means a wider target that hits less often. The right number depends on your strategy and how frequently your trades reach target.
- What is the breakeven win rate?
- It is the minimum percentage of trades you must win to break even at a given ratio, calculated as 1 ÷ (1 + ratio) × 100. At 2 : 1 you only need to win 33.33% of the time; at 1 : 1 you need 50%. Anything above your breakeven win rate is, on average, profitable before fees.
- Do I need to enter a quantity?
- No. The ratio and breakeven win rate come from price alone, so leaving quantity blank still works. Add a quantity (and a contract multiplier for futures) to also see your dollar risk and dollar reward for that exact position size.
- Does a higher risk/reward ratio always mean a better trade?
- Not on its own. A 5 : 1 trade looks attractive, but if the target is so far away that the market only reaches it 1 time in 6, the trade loses money over a sample. Always pair the ratio with a realistic estimate of how often price actually travels that far before hitting your stop — the ratio and your true win rate have to be judged together.
- How does risk/reward relate to expectancy?
- Expectancy per trade = (win rate × average reward) − (loss rate × average risk). With a 2 : 1 ratio and a 40% win rate, expectancy = (0.40 × 2R) − (0.60 × 1R) = 0.8R − 0.6R = +0.2R per trade — positive, so the edge compounds over many trades even though most individual trades lose.