The risk reward ratio compares the distance from your entry to your target against the distance from your entry to your stop. 1:3 means a winner pays three times what a loser costs. On its own the number says nothing about you actually making money... it only means something next to the win rate and other key metrics.
What is the risk reward ratio?
Measure your target distance, divide it by your stop distance, and that's the ratio. Entry at 100, stop at 98, target at 106 gives you 2 of risk and 6 of reward, so one to three, or 3R in R multiples. You set it before you enter, which is what makes it useful: it's the one part of the trade you know in advance, while the outcome stays unknown.
What is a good risk reward ratio?
The one that stays profitable at the win rate you actually get. One to two is where most traders start, because it leaves room to be wrong more often than you're right. Each ratio comes with a win rate you have to get:
| Risk reward | Win rate you need to break even |
|---|---|
| 1 to 1 | 50% |
| 1 to 1.5 | 40% |
| 1 to 2 | 33% |
| 1 to 3 | 25% |
| 1 to 5 | about 17% |
This is the win rate table seen from the other side. That one asks how big your winners need to be, this one asks how often you need to be right.
A bigger ratio is not a better one
Here is the part that trips people up... a target twice as far gets hit less than half as often. Stretch from 2R to 5R and the ratio looks great while your win rate quietly falls through the row you needed to hold. The test is to take the win rate from trades that used the same kind of target, never from your old 2R record. Our risk reward calculator does that comparison for you, with the break even rate next to the expectancy at the win rate you enter.
Costs move the line
Every number in that table sits before costs. Add trading costs and slippage and the real break even win rate lands higher, which is why a one to one setup with a thin edge is usually a losing business. The ratio sets the target, your stop loss sets the risk, and position sizing turns both into a quantity.
Frequently asked questions
Related terms
- R Multiple — Every trade measured against what you risked, where a full stop is always minus 1R.
- Slippage — The gap between the price you expected and the price you actually got.
- Trading Costs — Broker-reported commissions and fees, plus components computed from an exact verified schedule.
- Live vs Backtest — The gap between how a strategy looked in testing and how it performs with real money.