What is the risk reward ratio?
The risk reward ratio compares what you can lose on a trade with what you aim to make. If your stop loss is 5 points away and your target is 12.5 points away, you risk 1 to make 2.5 — a risk:reward of 1 : 2.5 (often called an RR of 2.5).
Reward = |Target − Entry|
Risk : Reward = 1 : (Reward ÷ Risk)
Breakeven win rate = 1 ÷ (1 + RR)
1:3 or 3:1? Both are used. This page writes risk first (1 : 3 = risk 1 to make 3). Some traders write reward first (3:1). What matters is that the reward is the bigger number.
Risk reward ratio and win rate
A ratio on its own doesn’t tell you if a strategy makes money — how often you win does. The higher your RR, the lower the win rate you need to break even:
| Risk : reward | Breakeven win rate | Expectancy at 40% wins |
|---|---|---|
| 1 : 0.5 | 66.7% | −0.40R |
| 1 : 1 | 50.0% | −0.20R |
| 1 : 1.5 | 40.0% | 0.00R |
| 1 : 2 | 33.3% | +0.20R |
| 1 : 2.5 | 28.6% | +0.40R |
| 1 : 3 | 25.0% | +0.60R |
| 1 : 4 | 20.0% | +1.00R |
| 1 : 5 | 16.7% | +1.40R |
Expectancy = (win rate × reward) − (loss rate × 1R), before fees. A trader who wins 70% of the time at 1 : 0.4 loses money (0.7 × 0.4 − 0.3 = −0.02R a trade), while one who wins 40% at 1 : 2 makes +0.20R a trade.
What is a good risk reward ratio?
Many traders look for at least 1 : 2, because it stays profitable with a win rate above 33.3%. But a “good” ratio is one your setup actually reaches. A 1 : 5 target that is almost never hit is worse than a 1 : 1.5 that works most of the time. Your journal is where you find out: compare the RR you planned with the RR you actually took, setup by setup.
Examples
Crypto (BTCUSDT long)
Entry 84,200, stop 83,600, target 85,700. Risk 600, reward 1,500 → 1 : 2.5. Risking $30 means 0.05 BTC and $75 at the target.
Forex (EURUSD short)
Entry 1.1650, stop 1.1680, target 1.1590. Risk 30 pips, reward 60 pips → 1 : 2. Breakeven win rate 33.3%.
Options (NIFTY call)
Premium 152.50, stop 128, target 210. Risk ₹24.50, reward ₹57.50 → 1 : 2.35. Breakeven win rate 29.9%.
Stocks (short)
Entry 1,395, stop 1,405, target 1,370. Risk ₹10, reward ₹25 → 1 : 2.5 — the stop is above entry, so it is a short.
Fees change your real risk reward
Every trade pays fees on the way in and out. On a tight stop they are a big slice of the risk: with 0.1% round-trip fees and a stop 0.3% away, fees cost about 0.33R per trade, so a 1 : 2 setup is really closer to 1 : 1.67 against a 1.33R loss. Add your fees above to see the breakeven win rate after costs. Our study of fees by timeframe measured this on six crypto markets: costs take 0.80R a trade on 5-minute charts and 0.04R on daily ones.
Frequently asked questions
How do you calculate the risk reward ratio?
Divide the distance from entry to target by the distance from entry to stop loss. Entry 100, stop 95 and target 112.5 give a reward of 12.5 and a risk of 5, so the ratio is 1 : 2.5.
What does a 1:2 risk reward ratio mean?
You risk 1 to make 2. If the stop is hit you lose 1R; if the target is hit you make 2R. You break even if you win at least one trade in three (33.3%), before fees.
What is a good risk reward ratio for day trading?
Many day traders aim for 1 : 1.5 to 1 : 3. Lower ratios need a high win rate; higher ratios are fine if your targets are actually reached. Check your own numbers per setup.
Is a higher risk reward ratio always better?
No. A far target is hit less often. What counts is expectancy — win rate times average win minus loss rate times average loss. A modest ratio that is reached often can beat a big one that rarely is.
How is the breakeven win rate calculated?
Breakeven win rate = 1 ÷ (1 + RR). At 1 : 2 that is 1 ÷ 3 = 33.3%. With fees, the win and the loss both shrink by the fee in R, which pushes the breakeven win rate up.
Does this work for shorts?
Yes. If your stop is above the entry the calculator treats the trade as a short, and the target must be below the entry.
Know your real risk reward
Profit Prism Journal shows the RR you planned next to the RR you actually took, your win rate and expectancy for every setup — for crypto, forex, stocks and F&O. Try it free for 7 days, no card.
Start the free trialFor education only. Not investment advice. Trading involves substantial risk of loss.