What the risk/reward ratio tells you
The risk/reward ratio compares how far price must move to hit your target against how far it must move to hit your stop. A trade risking 20 pips to make 60 pips has a reward-to-risk of 3:1, or “3R”.
Break-even win rate
The ratio sets the minimum win rate you need to break even, before costs:
Break-even win rate = 1 ÷ (1 + Reward-to-risk)
| Reward : Risk | Break-even win rate |
|---|---|
| 1 : 1 | 50.0% |
| 1.5 : 1 | 40.0% |
| 2 : 1 | 33.3% |
| 3 : 1 | 25.0% |
A higher ratio is not automatically better: distant targets are hit less often. What matters is the combination of ratio and win rate — your expectancy.
Expectancy
Expectancy (in R) = (Win rate × Average win in R) − (Loss rate × 1R). Positive expectancy over a large sample is what makes a strategy worth trading.
Frequently asked questions
What is a good risk/reward ratio?
Should spreads and commissions be included?
Calculators are provided for educational purposes. Risk warning: Trading forex, futures, CFDs, stocks and other leveraged products involves a high risk of loss and is not suitable for every investor. Past performance is not indicative of future results. Nothing on this site is investment advice.