Risk/Reward (R:R)
Risk/Reward (R:R) is the ratio of a trade's risk to its potential profit. At 1:2 the target is twice as far as the stop. Break-even win rate = 1 / (1 + R), where R = reward / risk.
How it works
Risk is the distance from entry to the stop-loss, reward is the distance from entry to the take-profit. The ratio shows how much you can make for every dollar you put at risk. Writing 1:3 means you risk 1 to make 3.
R:R is tied directly to your win rate, the share of winning trades. At 1:1 you need to win more than 50% of trades to be profitable. At 1:2, more than 33% is enough; at 1:3, more than 25%. That is before fees, which raise the bar a little.
You work out R:R before entering, not after. If the target does not offer at least 1:1.5 to 1:2, many traders simply skip the trade. But a high R:R is worthless if the target is unrealistic and price almost never gets there.
Entry 100, stop 98, target 106: risk 2, reward 6, R:R = 1:3. Break-even win rate: 1 / (1 + 3) = 25%.
10 trades risking $10 each at 1:2. You win 4 and lose 6: +4 × $20 − 6 × $10 = +$20. Even with only 40% winners, the result is positive.
The main mistake is moving the stop further away when price goes against you, or grabbing profit the moment it appears. Your real R:R then flips to 2:1 against you, and even frequent wins cannot save the account. Set the stop and target from the chart before you enter, log the actual result in R in your trade journal and check whether it matches the plan.
Questions and answers
What is R:R in simple terms?
It is how much you could lose versus how much you could make on a trade. A 1:3 R:R means you risk $10 to aim for $30.
What is a good risk/reward ratio?
Many traders only take trades at 1:2 or better. But a good R:R depends on your win rate: 1:1 can also be profitable if you win clearly more than half of your trades.
How do I calculate the break-even win rate from R:R?
Divide 1 by (1 + R), where R is reward divided by risk. For 1:2 that is 1 / 3 ≈ 33%; for 1:3 it is 25%.
Related terms
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Updated: 2026-10-19