Risk Reward Ratio Calculator
Calculate risk reward ratio with our free Risk reward ratio Calculator. Compare rates, see projections, and make informed financial decisions.
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Divide the distance from entry to take profit (reward) by the distance from entry to stop loss (risk). A 1:3 ratio means your potential reward is 3 times your potential risk. Combined with win rate, this determines your trading expectancy — the average profit per trade over time.
Last reviewed: December 2025
Worked Examples
Example 1: ICT Silver Bullet Setup
Example 2: Scalping Setup
Background & Theory
The Risk Reward Ratio Calculator applies the following established principles and formulas. Foreign exchange markets facilitate the conversion of one currency into another and serve as the largest and most liquid financial markets in the world, with daily turnover exceeding seven trillion US dollars. Exchange rates are quoted as currency pairs, expressing the price of one unit of a base currency in terms of a quote currency. For example, a EUR/USD rate of 1.0850 means one euro buys 1.0850 US dollars. The smallest standardized price movement in most pairs is the pip, typically the fourth decimal place, with a value of 0.0001 per unit for USD-denominated pairs. The bid price is the rate at which a dealer will buy the base currency, while the ask price is the rate at which it will sell. The spread between bid and ask represents the dealer's compensation and varies with liquidity and volatility. Leverage amplifies both gains and losses by allowing traders to control positions larger than their deposited margin. A 100:1 leverage ratio means a one-percent adverse move eliminates the entire margin, making position sizing and risk management critical. Two parity conditions from international economics anchor exchange rate theory. Purchasing Power Parity (PPP) holds that exchange rates should adjust over time so that identical goods trade at equivalent prices across countries: S = P_d / P_f, where S is the spot rate and P_d and P_f are domestic and foreign price levels. PPP performs well over long horizons but poorly in the short run due to trade barriers, non-tradable goods, and capital flows. Covered Interest Rate Parity (CIRP) is a near-arbitrage condition stating that forward exchange rate premiums or discounts exactly offset interest rate differentials between two currencies: F/S = (1 + r_d) / (1 + r_f). Deviations from CIRP create riskless arbitrage opportunities that traders rapidly eliminate. Uncovered Interest Rate Parity posits that high-yielding currencies should depreciate to offset their interest advantage, though empirical evidence is mixed and the carry trade — borrowing in low-rate currencies to invest in high-rate ones — has generated persistent returns.
History
The history behind the Risk Reward Ratio Calculator traces back through the following developments. For much of the nineteenth century and early twentieth century, the international monetary system operated under the classical gold standard, under which each participating currency was fixed to a defined weight of gold, making bilateral exchange rates effectively constant. The system provided price stability and facilitated global trade but constrained governments' ability to respond to economic downturns. World War One shattered the gold standard as nations suspended convertibility to finance wartime expenditures. The interwar period saw attempts to restore gold convertibility, most notably the British return to the gold standard in 1925 at the pre-war parity, a decision criticized by John Maynard Keynes as deflationary. The Great Depression forced widespread currency devaluations and the effective collapse of the international gold standard by the early 1930s. The Bretton Woods Conference of July 1944 established a new order in which member currencies were pegged to the US dollar, while the dollar alone was convertible into gold at 35 dollars per troy ounce. The International Monetary Fund and World Bank were created at the same conference to oversee the system. Bretton Woods delivered exchange rate stability during the postwar growth era but came under strain as US deficits and European dollar accumulation outpaced American gold reserves. On August 15, 1971, President Nixon announced the suspension of dollar-gold convertibility — the so-called Nixon Shock — effectively ending the Bretton Woods system. By 1973, major currencies had transitioned to floating exchange rates determined by market supply and demand, a regime that has persisted. On September 16, 1992, hedge fund manager George Soros shorted the British pound against the European Exchange Rate Mechanism constraints, forcing the UK's withdrawal in what became known as Black Wednesday. Electronic trading platforms emerged in the 1990s and 2000s, replacing voice-brokered interbank markets and dramatically reducing transaction costs for institutional and retail participants alike.
Key Features
- Calculate the precise monetary value of a single pip for any currency pair and lot size, automatically converting to your account denomination at the current cross rate.
- Determine optimal position size in lots or units based on your defined risk percentage, account balance, stop-loss distance in pips, and current pair price.
- Compute required margin and effective leverage for any position size across standard, mini, and micro lot structures for all major and exotic pairs.
- Estimate carry trade income and cost by calculating the net swap rate earned or paid overnight for holding a currency pair position based on central bank rate differentials.
- Quantify spread cost in account currency for a given lot size, making it straightforward to compare execution costs across brokers and trading sessions.
- Calculate realized and unrealized profit or loss in your account currency for long and short positions across any currency pair, including multi-leg setups.
- Assess trade setups by computing risk-reward ratio from entry, stop-loss, and take-profit levels, and calculate the minimum win rate needed for long-term profitability.
- Track maximum drawdown and required recovery percentage to help size positions consistently and avoid overexposure during losing streaks.
Frequently Asked Questions
Sources & References
Formula
Risk:Reward = (Take Profit - Entry) / (Entry - Stop Loss)
Divide the distance from entry to take profit (reward) by the distance from entry to stop loss (risk). A 1:3 ratio means your potential reward is 3 times your potential risk. Combined with win rate, this determines your trading expectancy — the average profit per trade over time.
Worked Examples
Example 1: ICT Silver Bullet Setup
Problem: Long EUR/USD: Entry 1.0850, Stop Loss 1.0820, Take Profit 1.0940. Win rate: 45%.
Solution: Risk = 1.0850 - 1.0820 = 30 pips\nReward = 1.0940 - 1.0850 = 90 pips\nRR = 90/30 = 1:3\nBreak-even WR = 1/(1+3) = 25%\nWith 45% WR > 25% break-even → Profitable setup\nExpectancy (risking $100): (0.45 × $300) - (0.55 × $100) = $135 - $55 = $80 per trade
Result: RR: 1:3 | Break-even: 25% | Your 45% WR = Profitable (+$80/trade avg)
Example 2: Scalping Setup
Problem: Short GBP/USD: Entry 1.2650, Stop Loss 1.2665, Take Profit 1.2630. Win rate: 65%.
Solution: Risk = 1.2665 - 1.2650 = 15 pips\nReward = 1.2650 - 1.2630 = 20 pips\nRR = 20/15 = 1:1.33\nBreak-even WR = 1/(1+1.33) = 43%\nWith 65% WR > 43% break-even → Profitable\nExpectancy (risking $100): (0.65 × $133) - (0.35 × $100) = $86.45 - $35 = $51.45
Result: RR: 1:1.33 | Break-even: 43% | Your 65% WR = Profitable (+$51/trade avg)
Frequently Asked Questions
What is a good risk-reward ratio for trading?
A minimum of 1:2 risk-reward ratio is recommended by most professional traders, meaning your potential profit is at least twice your potential loss. With a 1:2 RR, you only need to win 33.3% of trades to break even. ICT (Inner Circle Trader) methodology often targets 1:3 or higher. However, the 'best' ratio depends on your win rate — a scalper with 70% win rate can profit with 1:1 RR, while a swing trader with 40% win rate needs at least 1:2 RR. The key is that your RR ratio combined with your win rate produces positive expectancy.
How do I calculate risk-reward ratio?
Risk-Reward Ratio = (Take Profit Distance) / (Stop Loss Distance). Measure the distance from your entry to stop loss (risk) and entry to take profit (reward), both in pips or price. Example: Entry at 1.0850, Stop Loss at 1.0820 (30 pips risk), Take Profit at 1.0940 (90 pips reward). RR = 90/30 = 1:3. This means for every $1 you risk, you stand to gain $3. Always calculate RR before entering a trade — it's one of the most important metrics in trading.
Should I always aim for a 1:3 risk-reward?
Not necessarily. The ideal RR depends on your strategy and market conditions. Scalping strategies might use 1:1 or 1:1.5 with 60-70% win rates. Day trading with ICT concepts often targets 1:3 to 1:5. Swing trading can target 1:5 to 1:10 on larger moves. The key insight: there's a trade-off between RR and win rate. Higher targets mean fewer winners (price has to move further), while tighter targets hit more often. Find the RR that maximizes your expectancy based on backtesting.
What are the different lot sizes in forex and how do they affect risk?
A standard lot is 100,000 units, a mini lot is 10,000, a micro lot is 1,000, and a nano lot is 100 units of the base currency. Smaller lots reduce your dollar-per-pip exposure, making them suitable for beginners or smaller accounts.
How do I calculate position size for proper risk management?
Determine your risk per trade (typically 1-2% of account balance), set your stop-loss distance in pips, then divide the dollar risk by the pip value to get the correct number of lots. This ensures consistent risk regardless of the pair or stop-loss width.
Is my data stored or sent to a server?
No. All calculations run entirely in your browser using JavaScript. No data you enter is ever transmitted to any server or stored anywhere. Your inputs remain completely private.
References
Reviewed by Daniel Agrici, Founder & Lead Developer · Editorial policy