Risk Reward Ratio Calculator
Calculate risk reward ratio with our free Risk reward ratio Calculator. Compare rates, see projections, and make informed financial decisions.
Risk Reward Ratio Calculator
Calculator
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Formula: Risk:Reward = (Take Profit - Entry) / (Entry - Stop Loss)
Worked example — RR: 1:3 | Break-even: 25% | Your 45% WR = Profitable (+$80/trade avg)
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 Reward = 1.0940 - 1.0850 = 90 pips RR = 90/30 = 1:3 Break-even WR = 1/(1+3) = 25% With 45% WR > 25% break-even → Profitable setup Expectancy (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 Reward = 1.2650 - 1.2630 = 20 pips RR = 20/15 = 1:1.33 Break-even WR = 1/(1+1.33) = 43% With 65% WR > 43% break-even → Profitable Expectancy (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.
What is trading expectancy and why does it matter?
Expectancy is the average amount you expect to win (or lose) per trade over time. Formula: Expectancy = (Win Rate × Average Win) - (Loss Rate × Average Loss). If your expectancy is positive, your strategy is profitable over many trades. For example, with 50% win rate, 1:2 RR, risking $100: Expectancy = (0.5 × $200) - (0.5 × $100) = $100 - $50 = $50 per trade. This means on average you make $50 per trade. Even with a low win rate, high RR can produce positive expectancy.
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 is the break-even win rate?
Break-even win rate is the minimum percentage of winning trades needed to not lose money at a given RR ratio. Formula: Break-Even Win Rate = 1 / (1 + RR Ratio). Examples: 1:1 RR → 50% win rate needed. 1:2 RR → 33.3% needed. 1:3 RR → 25% needed. 1:5 RR → 16.7% needed. If your actual win rate exceeds the break-even rate, your strategy is profitable. This is why higher RR ratios are powerful — you can be wrong more often and still make money.
How do spread and commission change the real risk-reward ratio?
The ratio you plan from chart prices is a mid-price figure, but you buy at the ask and sell at the bid, so the spread is paid at entry: it pushes the stop effectively further away and the target effectively closer. A 30-pip stop and 90-pip target with a 1.5-pip spread become 31.5 and 88.5 pips, dropping the ratio from 3.00 to 2.81. Per-lot commission does the same thing, and it hurts tight-stop scalps most.
What is the difference between planned risk-reward and realised R-multiples?
Planned RR is what entry, stop and target imply when the order is placed. A realised R-multiple is what a closed trade actually returned, measured as profit divided by the initial risk. Partial take-profits, trailing exits and manual closes drag the realised average well below the planned figure. Feed the realised average winner and average loser into the expectancy formula instead of the planned ratio, or the strategy will look more profitable than the trade log supports.
Does moving the stop to break-even improve expectancy?
Shifting the stop to the entry price after the trade moves in your favour converts some would-be losers into scratch trades, but it also ejects you from trades that dip back through entry before running to target. The net effect depends on how often trades that retrace to break-even still reach the target. If that recovery rate is high, the technique strips out winners and lowers expectancy even while the headline win rate improves.
Why should the stop distance come from market structure rather than from a target ratio?
The stop belongs beyond the level that invalidates the idea — the swing low, the order block, the liquidity pool the setup depends on — and the ratio is then measured, not chosen. Tightening the stop inside normal noise to manufacture a 1:3 print only raises the chance of being taken out before the move develops. Comparing the stop distance with recent ATR is a fast check that the invalidation level sits outside routine intrabar range.
Which is better: a small ratio traded often or a large ratio traded rarely?
Expectancy is quoted per trade, so opportunity frequency decides the account outcome. Risking $100 at 1:1 with a 60 percent win rate returns (0.6 × $100) − (0.4 × $100) = $20 per trade, or $400 over 20 trades a week. A 1:5 setup at a 30 percent win rate returns (0.3 × $500) − (0.7 × $100) = $80 per trade, but only $160 a week if the setup appears twice.
References
Reviewed for accuracy by Daniel Agrici, Founder & Lead Developer · Editorial policy
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