Risk Reward Ratio Calculator
Evaluate the risk-to-reward profile of a trade based on your entry, stop-loss and take-profit levels. See your risk/reward ratio, break-even win rate, expectancy per trade, and the position size that keeps your risk within your account tolerance.
Trade Parameters
Trade Setup
Position Sizing
Win Rate Assumption
Results
Risk / Reward Ratio
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Risk vs reward
Win rate vs break-even
Calculation Breakdown
Calculation Assumptions
Risk per unit is the absolute difference between entry and stop-loss price.
Reward per unit is the absolute difference between entry and take-profit price.
Risk/Reward ratio = reward per unit ÷ risk per unit, displayed as 1 : X.
Break-even win rate = 1 ÷ (1 + R:R), expressed as a percentage.
Expectancy per trade in R = (win rate × R:R) − (1 − win rate).
Position size = risk amount ÷ risk per unit, when account balance and risk % are both greater than zero.
Fees, spreads, slippage and financing are not included. Actual trading results may differ.
Risk/reward calculations are estimates based on the inputs provided. Actual trade outcomes may differ because of market conditions, execution quality, fees, slippage and other factors. This calculator is for informational purposes only and is not financial advice.
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Risk Reward Ratio Calculator: Measure Potential Profit and Loss
A Risk Reward Ratio Calculator helps you compare the potential profit of a trade with the amount you could lose if the trade moves against you. Enter your entry price, stop-loss price and take-profit target to estimate the amount at risk, potential reward and risk-reward ratio before entering a trade.
The risk-reward ratio is a trading risk-management measure that compares the planned loss on a trade with its potential gain. A ratio of 1:2 means you are risking one unit to target two units of potential profit. Traders use this comparison when evaluating trade setups in stocks, forex, futures, options and other financial markets.
Use the calculator to examine the relationship between your entry price, stop-loss level and profit target. A favorable ratio alone does not establish that a trade is likely to succeed or that the strategy will be profitable over time.
Calculate Trade Risk
Measure the distance between the planned entry and stop-loss prices to estimate how much the trade could lose if the stop is triggered as expected.
Estimate Potential Reward
Measure the distance between the entry price and take-profit target to estimate the potential gain if the target is reached.
Compare Risk and Reward
Express the planned risk relative to the potential reward and assess the setup alongside your strategy, position size, trading costs and expected win rate.
How to Use the Risk Reward Ratio Calculator
Determine your planned entry, stop-loss and profit target before calculating the ratio. These levels should reflect your trading plan rather than be chosen solely to create an attractive numerical result.
Enter Your Entry Price
Enter the price at which you plan to open the position. For a long trade, this is generally the intended purchase price. For a short trade, it is the intended selling price. Your actual execution price may differ.
Set the Stop-Loss Price
Enter the price at which you plan to exit the trade if the market moves against you. A long position typically has a stop below entry, while a short position typically has a stop above entry.
Enter Your Profit Target
Enter the price at which you plan to take profit. A long trade normally has a target above entry, while a short trade normally has a target below entry. The target should be consistent with your trading plan.
Review the Risk-Reward Ratio
Review the calculated ratio, planned risk and potential reward. If your calculator supports position size, contract quantity or fees, use those inputs to estimate the monetary exposure more accurately.
Check that the prices match your trade direction
For a long trade, the conventional arrangement is stop-loss below entry and profit target above entry. For a short trade, the target is below entry and stop-loss is above entry. If the levels do not match the intended direction, verify the inputs before interpreting the calculated ratio.
Risk Reward Ratio Formula
The calculation compares the planned loss from entry to stop-loss with the potential gain from entry to the profit target. This content expresses the ratio as risk first, followed by reward, such as 1:2 or 1:3.
How is the risk-reward ratio calculated?
First, calculate the price distance between entry and stop-loss to determine the planned risk per share or unit. Next, calculate the distance between entry and target to determine the potential reward per share or unit.
Divide the potential reward by the planned risk to determine the reward multiple. If the reward is three times the risk, the trade has a 1:3 risk-reward ratio. In other words, each unit of planned risk corresponds to three units of potential reward.
Does position size change the ratio?
Position size changes the monetary amount you stand to risk and the potential monetary gain, but it does not change the basic ratio when both outcomes scale proportionally with the number of shares or units.
For example, doubling a position from 100 shares to 200 shares doubles both the planned monetary risk and potential monetary reward under the same price levels. The ratio remains unchanged before considering costs, execution differences or other contract-specific effects.
How do costs affect the result?
Brokerage, spread, commissions, exchange charges, funding costs and slippage can reduce the net reward or increase the effective loss. A ratio calculated from price distances alone is therefore a planned gross ratio, not necessarily the ratio you will realize after trading costs.
Can the actual loss exceed planned risk?
Yes. A stop-loss order does not always guarantee execution at the specified price. Market gaps, low liquidity, rapid price changes and slippage can produce an exit price worse than the planned stop. Leverage can also increase the monetary impact of adverse price movements.
Risk Reward Ratio Calculator Example
Suppose a trader plans to buy a stock at $100, set a stop-loss at $95 and place a take-profit target at $115. The following example assumes the trade uses 100 shares and both exit prices are achieved exactly as planned.
Trade risk and potential reward
The entry-to-stop distance is $5 per share, while the entry-to-target distance is $15 per share. The potential reward is therefore three times the planned risk.
If the stop-loss is executed at $95, the planned loss is $5 per share multiplied by 100 shares, or $500. If the target is reached and the position is sold at $115, the gross profit is $15 per share multiplied by 100 shares, or $1,500.
The reward-to-risk multiple is $1,500 divided by $500, which equals 3. The risk-first notation is therefore 1:3: for every dollar of planned risk, the trade targets three dollars of potential gross profit.
This example excludes brokerage, taxes, spreads and slippage. Actual execution may differ from the planned levels, and the trade can reach neither the target nor the stop within the period you expect.
Risk Reward Ratio Comparison
Different planned ratios require different win rates to break even under a simplified model. The table below assumes full planned wins and losses, with no transaction costs or other execution effects.
| Risk-Reward Ratio | Risk | Potential Reward | Break-Even Win Rate |
|---|---|---|---|
| 1:1 | $100 | $100 | 50.00% |
| 1:2 | $100 | $200 | 33.33% |
| 1:3 | $100 | $300 | 25.00% |
| 1:4 | $100 | $400 | 20.00% |
| 1:5 | $100 | $500 | 16.67% |
A higher ratio does not automatically make a trade better
A more distant profit target can increase the reward relative to planned risk, but it may also be less likely to be reached. The relevant win rate depends on the strategy, instrument, market environment, entry criteria and exit rules. Evaluate the ratio alongside realistic trade outcomes rather than relying on the ratio alone.
Risk Reward Ratio for Long and Short Trades
The ratio can be calculated for both long and short positions. The direction changes the placement of stop-loss and target levels, but the basic comparison between adverse and favorable price movements remains the same.
Long Trade
A long trade generally profits when the market price rises after entry. The stop-loss is normally below entry, and the profit target is above entry.
Entry: $100
Stop: $95
Target: $110
Risk per share is $5, and potential reward per share is $10. This is a 1:2 risk-reward ratio before costs.
Short Trade
A short trade generally profits when the market price falls after entry. The stop-loss is normally above entry, and the profit target is below entry.
Entry: $100
Stop: $110
Target: $80
Risk per share is $10, and potential reward per share is $20. This is also a 1:2 risk-reward ratio before costs, assuming the trade is executed at those levels.
Short positions can involve additional risks
Short selling can expose traders to substantial losses if the price rises, along with borrowing costs, margin requirements and other market-specific risks. A simple price-distance ratio does not capture every risk of short selling or leveraged instruments.
Risk Reward Ratio vs. Position Sizing
Risk-reward analysis measures the relationship between potential profit and planned loss. Position sizing determines how much money is exposed to those price movements. Both are important parts of a trading risk-management plan.
Define Your Risk Budget
Decide how much money you can afford to risk on a trade before determining the position size. A planned percentage of account equity is sometimes used, but the appropriate amount depends on your financial circumstances and risk tolerance.
Calculate Risk per Unit
Determine the monetary difference between entry and stop-loss for one share, contract or unit. For instruments with contract multipliers or pip values, apply the relevant instrument-specific conversion.
Estimate Position Size
Divide the planned monetary risk budget by the estimated risk per unit to calculate a theoretical position size. Round to permitted lot or contract increments and account for fees, liquidity and the possibility of execution slippage.
Example of position sizing
Suppose a trader sets a planned monetary risk budget of $200 and the entry-to-stop distance is $4 per share. Dividing $200 by $4 gives a theoretical position size of 50 shares before costs and execution considerations.
If the same trade targets $12 above entry, the planned reward is $12 per share. At 50 shares, the potential gross profit is $600 and the planned gross risk is $200, producing a 1:3 risk-reward ratio.
The position size changes the dollar amounts at stake, while the price distances determine the basic ratio. A stop-loss can execute at a worse price than planned, so the risk budget should not be treated as a guaranteed maximum loss.
Risk Reward Ratio, Win Rate and Trading Expectancy
The risk-reward ratio describes the relative size of a planned win and loss. The win rate describes the proportion of trades that win, while expectancy estimates the average result per trade under the assumed outcomes. Considering these measures together provides more context than looking at a single ratio.
What is the break-even win rate?
The break-even win rate is the percentage of winning trades needed to offset losses when every win earns the same amount and every loss incurs the same amount. It is calculated before costs and assumes that the planned outcomes are achieved as modeled.
For a 1:2 risk-reward ratio, the planned reward is twice the risk. Under this simplified model, one winning trade offsets two losing trades in monetary terms, so the break-even win rate is one-third, or approximately 33.33%.
What is trading expectancy?
Expectancy estimates the average profit or loss per trade using the win rate, average winning amount and average losing amount. A positive theoretical expectancy does not guarantee future profits because market conditions, trade outcomes and costs can change.
Actual analysis should use realistic historical or observed trade outcomes, including partial exits, different winning and losing sizes, costs and slippage when available.
Common Risk Reward Ratio Mistakes
A risk-reward calculation can be useful, but it can be misleading when the inputs are unrealistic or important trading costs and execution risks are ignored.
Choosing an Unrealistic Target
A distant take-profit target may produce an attractive ratio without being realistically achievable. Consider market structure, price volatility, liquidity and your documented trading strategy when setting a target.
Placing a Stop Only to Improve the Ratio
A very tight stop can artificially increase the calculated ratio, but normal price fluctuations may trigger it frequently. Stop placement should reflect the trade setup and acceptable risk rather than a desired ratio alone.
Ignoring Trading Costs
Spreads, commissions, slippage and other charges affect realized outcomes. A gross ratio calculated from price distances can overstate the reward relative to the effective risk after costs.
Confusing Risk First With Reward First
This content writes the ratio as risk:reward. Some platforms instead display reward divided by risk as a single multiple or use reward:risk notation. Check the convention before comparing numbers.
Ignoring Win Rate
A high potential reward does not show how often a trade reaches its target. Assess the ratio together with realistic winning frequency, average loss and average profit.
Assuming a Stop Guarantees the Planned Loss
Market gaps, fast price changes and insufficient liquidity can cause execution away from a stop price. Leverage and contract specifications can also affect actual monetary exposure.
Frequently Asked Questions About Risk Reward Ratios
Find answers to common questions about calculating trade risk, estimating potential reward, understanding ratio conventions and evaluating trading outcomes.
What is a risk-reward ratio?
A risk-reward ratio compares the planned loss on a trade with its potential profit. In risk-first notation, a 1:2 ratio means risking one unit to target two units of potential reward before costs.
How do I calculate the risk-reward ratio?
Calculate the distance between entry and stop-loss to determine risk, then calculate the distance between entry and target to determine potential reward. Divide the reward by the risk to obtain the reward multiple and express it as a risk-first ratio.
What does a 1:2 risk-reward ratio mean?
It means the planned potential reward is twice the planned risk. For example, risking $100 to target a gross profit of $200 represents a 1:2 ratio, assuming both outcomes are achieved at the specified prices.
What is a good risk-reward ratio?
There is no universally best ratio. Its usefulness depends on the strategy, realistic win rate, trade costs and the likelihood of reaching the target before the stop. A higher ratio alone does not establish that a trade is favorable.
What is the break-even win rate for a 1:2 ratio?
Under the simplified assumptions of fixed wins and losses and no trading costs, a 1:2 risk-reward ratio has a break-even win rate of approximately 33.33%. The required rate can be higher after costs and differences in realized outcomes are considered.
Does position size affect the risk-reward ratio?
Position size changes the monetary risk and potential reward, but it does not change the basic ratio when both amounts scale proportionally with position size. Fees, contract multipliers and execution effects can influence actual outcomes.
Can I calculate a risk-reward ratio for short trades?
Yes. For a conventional short trade, the stop-loss is above entry and the profit target is below entry. Calculate the adverse and favorable price distances using the trade direction, then compare the risk and reward in the same way as for a long trade.
Can I use this calculator for forex and futures?
The price-distance calculation applies broadly, but monetary risk depends on instrument-specific details. Forex pip values, futures contract multipliers, lot sizes, currency conversions and other factors may need to be included for an accurate monetary estimate.
Does a stop-loss guarantee the planned maximum loss?
No. A stop order may execute at a different price when markets move quickly or prices gap. Slippage, liquidity conditions, order types and leverage can cause actual losses to exceed the planned amount.
Is the risk-reward ratio the same as trading expectancy?
No. The risk-reward ratio compares the size of a planned win with a planned loss. Expectancy estimates the average result per trade by considering winning probability, losing probability and average outcomes. They provide different information about a strategy.
Does a 1:3 ratio guarantee profitability?
No. A 1:3 ratio only means the planned reward is three times the planned risk. A strategy can still lose money if winning trades occur too infrequently or actual gains and losses differ from the planned amounts.
Does the calculator include brokerage and slippage?
A basic risk-reward calculator usually compares price distances and may not include trading costs. Unless your tool explicitly accounts for brokerage, spreads, fees and slippage, treat its output as a gross planned ratio.
Disclaimer: This Risk Reward Ratio Calculator and its educational content are intended for general informational purposes only. The calculated ratio describes a planned relationship between potential loss and potential profit, not the probability of success or a guarantee of trading results. Actual outcomes may differ because of market gaps, slippage, liquidity, fees, leverage and changes in execution prices. Trading financial instruments can involve substantial losses. This content is not personalized investment or trading advice.