Risk/Reward = potential loss ÷ potential gain. A 1:2 ratio needs only 33.3% win rate to break even; a 1:3 ratio needs 25%.
Break-even win rate formula: 1 / (1 + R), where R is reward-to-risk. Higher R:R = lower required hit rate — that's why trend-followers tolerate 60-70% losing trades. The trade-off: setups with R:R ≥ 1:3 are rarer, so quality matters more than quantity.
Educational tool. Not financial advice. Risk/reward ratios don't capture asymmetric outcomes, tail-risk events, or position sizing relative to your total capital.
Break-even win rates by R:R ratio
| Risk:Reward | Min win rate | Example |
|---|---|---|
| 1:1 | 50% | 100 trades, 50 wins = breakeven |
| 1:1.5 | 40% | Win 4 of 10 to break even |
| 1:2 | 33.3% | Win 1 of 3 — strategy floor |
| 1:2.5 | 28.6% | Win 2 of 7 |
| 1:3 | 25% | Win 1 of 4 — popular swing R:R |
| 1:4 | 20% | Win 1 of 5 — trend-following |
| 1:5 | 16.7% | Win 1 of 6 — high-conviction trades |
| 1:10 | 9.1% | Win 1 of 11 — moonshot setup |
| 1.5:1 | 60% | Tight stop, modest target |
| 2:1 | 66.7% | High win-rate scalping |
| 3:1 | 75% | Mean-reversion / scalp |
| 1:0.5 | 66.7% | Asymmetric loss tolerance — risky |
History & origin
The risk-reward framework was formalised in modern finance by Harry Markowitz's 'Portfolio Selection' (Journal of Finance, 1952), which introduced mean-variance optimisation and earned the 1990 Nobel Prize in Economics. The Sharpe ratio (William Sharpe, 1966) extends the framework to compare investments at different risk levels. Risk-reward ratios in active trading (1:2, 1:3, 1:5) trace to early 20th-century practice; Edwin Lefèvre's Reminiscences of a Stock Operator (1923) gives a vivid early account.
Risk/Reward Ratio Calculator
Set your entry price, stop loss, and take profit to see the R:R ratio. Visual bar shows proportion of risk vs reward with dollar amounts and breakeven win rate.
How to evaluate risk/reward
- Enter your entry price, target price and stop-loss price for the trade.
- The calculator computes the risk/reward ratio — the potential profit divided by the potential loss.
- A ratio of at least 2:1 (or 3:1 in most setups) is a reasonable minimum for trend trades.
- Use the position-size suggestion to avoid risking more than a fixed percentage of your portfolio on any one trade.
Common use cases
- Screening trade ideas by ruling out setups with risk/reward under a minimum threshold.
- Sizing positions consistently using a fixed percentage of portfolio at risk per trade.
- Reviewing past trades to see whether winners actually hit their targets or only delivered partial reward.
- Teaching trade discipline by making risk/reward the first filter before any technical analysis.
Frequently asked questions
What is a risk reward ratio?
A risk-to-reward ratio (R:R, also written 'risk/reward' or 'risk to reward') compares how much you stand to lose if your stop-loss is hit against how much you stand to gain if your target is reached. A 1:2 R:R means risking $1 to potentially make $2.
How do you calculate risk-to-reward?
R:R = potential reward / potential risk. Reward = take-profit price − entry price. Risk = entry price − stop-loss price (for longs). Divide reward by risk and you get the ratio. The calculator does this automatically once you enter the three prices.
What is a good risk reward ratio for trading?
Most consistent traders aim for at least 1:2, meaning they want potential reward to be twice the potential risk. Combined with a 40-50% win rate, that R:R produces positive expectancy. Day-traders sometimes accept 1:1.5 with higher win rates; swing traders often demand 1:3 or better.
Is a higher ratio always better?
Higher is better for a fixed win-rate, but extreme ratios (10:1) usually require low hit rates that make the expected value fragile. Most systems balance hit rate and average win.
Where should I set the stop loss?
Below a meaningful support level for long trades, above resistance for shorts. Arbitrary percentage stops (e.g., always 5% below entry) are less effective than structural stops based on the chart.
What position size is safe?
Risking 1-2% of portfolio per trade is a common rule. That way even a string of 10 losses only drawdowns your account 10-20% — recoverable with discipline.
Is my data stored?
No. Calculations run entirely in your browser.
About risk/reward
The risk-to-reward ratio compares potential loss to potential gain. A 1:2 R:R means you risk $1 to potentially make $2. Professional traders aim for at least 1:2.
- Visual R:R ratio bar
- Dollar risk and reward amounts
- Breakeven win rate calculation
- Adjustable position size
- Entry, stop loss, take profit inputs
Free. No signup. Inputs stay in your browser. Ads via AdSense (consent required).
By Marco B. ·