What the risk reward ratio tells you
The risk reward ratio compares how far price can move against you before your stop loss is hit with how far it needs to move in your favour to reach your target. A trade risking 30 pips to make 90 pips has a ratio of 1:3, often written as 3R.
On its own the ratio says nothing about whether a trade will work. Its value is in what it implies about your win rate: the higher the reward per unit of risk, the fewer trades need to win for the strategy to break even. This risk reward calculator shows the ratio, the money on each side and that break-even win rate.
The formula
Risk = |Entry − Stop loss|
Reward = |Target − Entry|
R:R ratio = Reward ÷ Risk
Break-even win rate = 1 ÷ (1 + R:R) × 100%
The break-even win rate ignores costs. Spread, commission and swap push the real figure slightly higher.
Worked example: an AUDUSD long
You plan to buy AUDUSD at 0.6650, with a stop loss at 0.6620 and a target at 0.6740. Position size is 0.4 lot in a USD account.
- Risk: 0.6650 − 0.6620 = 0.0030, which is 30 pips
- Reward: 0.6740 − 0.6650 = 0.0090, which is 90 pips
- R:R ratio: 90 ÷ 30 = 1:3
- Pip value: 0.4 × 100,000 × 0.0001 = $4 per pip
- Money at risk: 30 × $4 = $120
- Potential reward: 90 × $4 = $360
- Break-even win rate: 1 ÷ (1 + 3) = 25%
In other words, if you took many trades with this exact structure, you would need to win slightly more than one in four, after costs, to avoid losing money over time.
Ratio vs win rate
| R:R ratio | Break-even win rate |
|---|---|
| 1:0.5 | 66.7% |
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33.3% |
| 1:3 | 25% |
| 1:4 | 20% |
This table is why traders talk about the two together. A scalper with a 1:0.5 ratio needs to be right two times in three. A trend follower aiming for 1:4 can be wrong most of the time and still break even, but will usually face long losing streaks.
How to use this calculator
- Enter your entry price.
- Enter your stop loss price.
- Enter your take profit (target) price.
- Optionally choose the instrument, lot size and account currency to see the money at risk and potential reward.
- Read the R:R ratio and the break-even win rate, and compare them with your strategy's track record.
If you prefer to start from pip distances rather than prices, the stop loss and take profit calculator turns pips into exact price levels you can paste back here.
Using R:R sensibly
A high ratio is not automatically better. Targets that are far away are reached less often. A 1:5 trade with a 10% hit rate is worse than a 1:2 trade with a 45% hit rate. Judge the ratio together with how often similar setups reach their targets.
Set the stop first. Place the stop where the trade idea is proven wrong, then look for a realistic target. Moving the stop closer just to improve the ratio usually raises the chance of being stopped out.
Size from the risk, not the reward. The ratio tells you the shape of the trade; the position size calculator tells you how big to make it so the risk side fits your plan.
Include costs on short-term trades. On a 5 pip stop, a 1 pip spread is 20% of the risk. Add spread to the risk side for an honest ratio.
Measuring results in R
Once every trade has a defined risk, you can record outcomes in R. A full win on the AUDUSD example is +3R, a stop-out is −1R. Tracking results this way makes performance comparable across instruments and position sizes, and pairs well with the profit calculator when you want the money figure as well.
Frequently asked questions
What is a good risk reward ratio?
There is no single right number. Many swing traders aim for 1:2 or better, while some high-win-rate strategies use 1:1 or less. What matters is that your win rate is comfortably above the break-even rate for your ratio.
How do I calculate risk reward for a sell trade?
The same way. Risk is the distance from entry up to the stop, reward is the distance from entry down to the target. Selling at 1.2000 with a stop at 1.2040 and a target at 1.1920 is 40 pips risk for 80 pips reward, or 1:2.
Is 1:1 risk reward bad?
Not necessarily. It needs a win rate above 50% after costs to be profitable. Some strategies achieve this; many do not.
Does the ratio change if I move my stop to break-even?
Once the stop is at entry, the original risk no longer applies to the open trade. The ratio you planned still describes the trade when you entered it, which is the figure to record.
Does lot size affect the risk reward ratio?
No. The ratio depends only on price distances. Lot size changes the money values on both sides equally.
Closing note
The risk reward calculator gives every trade idea a clear shape before you commit money. Pair the ratio with an honest estimate of your win rate and a risk-based position size.
Trading leveraged products carries a high risk of loss. Results are estimates; check your broker's contract specifications.