A risk reward calculator answers a question worth asking before every single trade, not after: given a planned entry price, stop-loss, and take-profit level, is the potential reward large enough relative to the risk being taken to make the trade worth entering? This page covers what risk-to-reward ratio means, how to calculate it, a worked example, and how it relates to (but differs from) win rate and profit factor — two other commonly confused trading performance metrics. Browse all trading calculators for related tools.
What Is Risk-to-Reward Ratio (R/R)?
Risk-to-reward ratio (often written R/R, RR, or risk/reward) compares how much a trader stands to lose if a trade hits its stop-loss against how much they stand to gain if it hits its take-profit target. It's calculated before a trade is entered, as a planning tool — unlike win rate or profit factor, which are calculated after a series of trades have already closed.
How to Calculate Risk Reward Ratio
The R/R Formula
Risk = |Entry Price − Stop-Loss Price|
Reward = |Take-Profit Price − Entry Price|
R/R Ratio = Reward ÷ Risk
The result is typically expressed as a ratio like 1:2 or 1:3, meaning the potential reward is 2 or 3 times the size of the potential risk being taken on the trade. Absolute values mean the same formula works for both long and short setups.
Worked Example: Calculating R/R Before a Trade
Example: Entry, Stop-Loss, and Take-Profit
Entry Price = 1.0850 (EUR/USD long trade)
Stop-Loss = 1.0820 (30 pips below entry)
Take-Profit = 1.0910 (60 pips above entry)
Risk = |1.0850 − 1.0820| = 30 pips
Reward = |1.0910 − 1.0850| = 60 pips
R/R Ratio = 60 ÷ 30 = 1:2
This trade is set up with a 1:2 risk-reward ratio — the potential profit target is twice the size of the potential loss being risked if the stop-loss is hit instead.
Why a Good R/R Ratio Doesn't Guarantee Profit
A favorable R/R ratio on its own doesn't determine whether a trading strategy is actually profitable over time — it has to be considered alongside win rate. A strategy with a 1:3 R/R ratio but a very low win rate can still lose money overall, while a strategy with a modest 1:1 R/R ratio but a high win rate can be quite profitable. R/R ratio and win rate work together, not independently, to determine a strategy's overall trading expectancy.
Win Rate and Profit Factor — Different, Related Metrics
How Win Rate Interacts With R/R
Win rate is the percentage of trades that close as winners out of total trades taken — a statistic calculated across a series of completed trades, not on a single planned trade the way R/R is. The two metrics interact directly: a trading approach's overall expectancy depends on both the R/R ratio being used and the win rate that approach actually achieves over time. A simple way to check whether a strategy is theoretically viable: multiply win rate by average reward, and compare it to loss rate multiplied by average risk — if the first figure exceeds the second, the strategy has positive expectancy on average. This calculator does not track win rate or profit factor across a trade history.
Profit Factor: A Portfolio-Level Metric
Profit factor is calculated as gross profit divided by gross loss across a series of trades — another after-the-fact performance metric, distinct from the before-the-trade R/R ratio calculated on this page. A profit factor above 1.0 means total profits exceeded total losses over the measured period; the specific R/R ratios used on individual trades, combined with the win rate achieved, are what ultimately produce a given profit factor over time.
What R/R Ratio Do Traders Typically Aim For?
Common R/R Targets Like 1:2 and 1:3
Many traders aim for a minimum R/R ratio of 1:2 or higher before entering a trade, on the reasoning that even a win rate below 50% can still be profitable overall if the average winning trade is meaningfully larger than the average losing trade. This isn't a universal rule — different trading strategies, timeframes, and market conditions can justify different R/R targets — but the underlying logic (favorable reward relative to risk, checked before entry) is a widely referenced risk management principle across many trading approaches.
Related Trading Calculators
- Profit/Loss Calculator — calculate the actual dollar outcome once a trade closes
- Lot Size Calculator — determine position size based on the risk side of the R/R calculation
- Pip Calculator — find pip value used to measure risk and reward in monetary terms
- Margin Calculator — check required margin for the position
Frequently Asked Questions
What is risk-to-reward ratio in trading?
Risk-to-reward ratio compares how much a trader stands to lose against how much they stand to gain on a planned trade, expressed as a ratio like 1:2.
How do I calculate risk reward ratio?
Subtract the stop-loss from the entry price for risk, subtract the entry price from the take-profit for reward, then divide reward by risk. A 30-pip risk and 60-pip reward produces a 1:2 ratio.
What is a good R/R ratio?
Many traders aim for 1:2 or higher, though the ideal target depends on the specific strategy and the win rate it achieves.
Is R/R ratio the same as win rate?
No. R/R ratio is calculated before a trade based on planned entry, stop-loss, and take-profit levels. Win rate is calculated after a series of trades as the percentage that closed as winners.
What is profit factor?
Profit factor is gross profit divided by gross loss across a series of completed trades, a portfolio-level performance metric different from the per-trade R/R ratio.
Can a good R/R ratio still lose money overall?
Yes. A favorable R/R ratio combined with a very low win rate can still produce an overall losing strategy.
What does R/R stand for in trading?
R/R stands for risk-to-reward, sometimes also written as RR or risk/reward.
Is this risk reward calculator free to use?
Yes. It is free, requires no sign-up, and calculates R/R ratio instantly.