On this page (9 questions)
- ↑ Calculator
- 1What is a risk/reward ratio?
- 2How do you calculate risk/reward?
- 3What does 2R mean?
- 4What win rate do you need to break even?
- 5Is 1:3 the same as 3:1?
- 6Is a higher risk/reward ratio always better?
- 7Does it work for short trades and futures?
- 8How do you turn the ratio into money?
- 9What doesn't the risk/reward ratio include?
What is a risk/reward ratio?
It compares what a trade stands to lose at its stop with what it stands to gain at its target. Risk 20 pips to make 40 and the ratio is 1:2: you’re aiming to make twice what you risk.
It’s a plan, worked out before you enter. What actually happens to the trade is measured afterwards, in R, once it closes.
How do you calculate risk/reward?
Risk is the distance from entry to stop, reward is the distance from entry to target, and the ratio is reward ÷ risk. A buy at 1.08500 with a stop at 1.08300 and a target at 1.08900 risks 0.00200 to make 0.00400, which is 2.00R, or 1:2.
Worked example
- Risk distance1.08500 − 1.08300= 0.00200
- Reward distance1.08900 − 1.08500= 0.00400
- Planned R0.00400 ÷ 0.00200= 2.00R
- Break-even win rate1 ÷ (1 + 2.00) is about 33.333% rounded to 33.3%
Only the distances matter, so you can also type them directly. A 20-pip stop and a 30-pip target is 30 ÷ 20 = 1.50R, whatever the pair.
What does 2R mean?
It means the target is worth twice what you’d lose at your stop, where 1R is that loss. The journal calls this planned R, and measures every closed trade in R afterwards, so you can compare what you planned with what you got.
1R is a distance and an amount at the same time. On a 20-pip stop risking $100, 1R is 20 pips and $100; a 2R target is 40 pips away and worth $200 before costs. See how R-multiples are measured for closed trades.
What win rate do you need to break even?
Break-even win rate = 1 ÷ (1 + planned R). At 2R you need to win 1 trade in 3, which is 33.3%, before costs.
Break-even win rate
| Planned R | Risk : reward | Break-even win rate |
|---|---|---|
| 0.5R | 1 : 0.5 | 66.7% |
| 1R | 1 : 1 | 50.0% |
| 1.5R | 1 : 1.5 | 40.0% |
| 2R | 1 : 2 | 33.3% |
| 3R | 1 : 3 | 25.0% |
| 4R | 1 : 4 | 20.0% |
This assumes every winner reaches its target and every loser is stopped out at its stop, with no costs. Real trades rarely do both, so read it as the floor your win rate has to clear, not a forecast.
Is 1:3 the same as 3:1?
It depends on which way round it is written, because traders use both. This calculator writes risk first, so 1:3 means risking 1 to make 3, the same as 3R.
Some platforms and courses write reward first and call the same trade 3:1. Saying it in R avoids the confusion: 3R always means a target three times the distance of the stop.
Is a higher risk/reward ratio always better?
Not by itself, because a target farther away is usually reached less often. What matters is the ratio and the win rate together: at 2R and a 40% win rate, a trade averages 0.40 × 2 − 0.60 × 1 = +0.20R before costs.
Keep the same 2R plan but win 30% of the time, and it averages 0.30 × 2 − 0.70 × 1 = −0.10R. The average result per trade is called expectancy, and your journal can only tell you yours once you’ve logged enough trades.
Does it work for short trades and futures?
Yes. The calculator reads the side from where your stop and target sit, and it uses prices alone, so forex, gold, indices, futures and stocks all work the same way.
A stop below the entry or a target above it means a buy; a stop above or a target below means a sell. Example, a short on MNQ:
Worked example
- Risk distance20,020 − 20,000= 20
- Reward distance20,000 − 19,950= 50
- Planned R50 ÷ 20= 2.50R
- Break-even win rate1 ÷ (1 + 2.50) is about 28.571% rounded to 28.6%
If the stop and target are both above the entry, or both below, they can’t belong to the same trade, and the calculator says so instead of guessing. Negative futures prices work too.
How do you turn the ratio into money?
Enter the amount you are risking, and the calculator multiplies it by the planned R. Risking $100 at 2R means a potential profit of $200.00, before costs.
To find the position size that risks exactly that amount, use the position size calculator with the same stop.
What doesn't the risk/reward ratio include?
It uses prices only, so it leaves out spread, commission, swap and slippage. Those make real wins a little smaller and real losses a little bigger, which is why the journal measures closed trades in R after costs.
A trade stopped out exactly at its stop with commission is therefore a little worse than −1R. This calculator does the arithmetic. It isn’t trading advice.