What is risk-reward ratio?
Risk-reward ratio compares how much you are risking to how much you could make. If you risk $100 to make $300, your setup is 1:3. This is one of the fastest ways to filter trades before emotion gets involved.
Risk-reward formula
R:R = Reward ÷ Risk | Break-even Win Rate = 1 ÷ (1 + R:R)
A 1:2 setup needs a 33.3% win rate to break even before costs. A 1:1 setup needs 50%. A 1:3 setup needs only 25%. Your real edge comes from combining actual win rate with average reward-to-risk over many trades.
FAQs
What is a good risk-reward ratio?
Many traders target at least 1:2, but a setup is only good if your real win rate and costs support it. Some scalping systems can work with lower R:R if the win rate is high enough.
Does risk-reward guarantee profitability?
No. It describes one trade setup. Long-term profitability depends on win rate, average winner, average loser, fees, slippage, and consistency.
How do I turn this into dollars?
After checking the R:R, use the lot size calculator to size your trade or the profit calculator to estimate the dollar P&L.