Risk Reward Calculator
Calculate your trading risk-to-reward ratio, potential profit, potential loss, and price distances using your entry, stop-loss, and take-profit levels.
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Calculation Results
Risk Distance = |Entry − Stop-Loss|
Reward Distance = |Take-Profit − Entry|
R:R = Risk Distance : Reward Distance
Reward Multiple = Reward Distance ÷ Risk Distance
What Is a Risk-to-Reward Ratio?
The risk-to-reward ratio compares the potential loss of a trade with its potential profit. It is commonly used by traders when planning entries, stop-loss levels and profit targets.
For example, if a trade has a potential loss of $100 and a potential profit of $200, the potential reward is twice the potential risk. This can be described as a 1:2 risk-to-reward ratio.
Risk vs Reward
The risk portion is generally determined by the distance between the entry price and stop-loss price. The reward portion is determined by the distance between the entry price and take-profit price.
How to Calculate Risk-to-Reward Ratio
A basic risk-to-reward calculation involves three important price levels: the entry, stop-loss and take-profit.
Risk = |Entry Price − Stop-Loss Price|
Reward = |Take-Profit Price − Entry Price|
Reward Multiple = Reward ÷ Risk
If the risk distance is 10 price units and the reward distance is 20 price units, the reward multiple is 2R and the ratio can be expressed as 1:2.
Risk-to-Reward Examples
| Risk Distance | Reward Distance | Risk-to-Reward | Reward Multiple |
|---|---|---|---|
| 10 | 10 | 1:1 | 1R |
| 10 | 20 | 1:2 | 2R |
| 10 | 30 | 1:3 | 3R |
| 20 | 60 | 1:3 | 3R |
Risk-to-Reward Ratio and Trading
A risk-to-reward ratio is only one component of a trading plan. A larger potential reward relative to risk does not automatically mean a trade has a higher probability of success.
Traders may also consider market structure, volatility, liquidity, trading costs, entry quality, stop placement and their historical trading results.
1:1 Risk-to-Reward
A 1:1 setup has equal potential reward and potential risk based on the selected price levels.
1:2 Risk-to-Reward
A 1:2 setup has a potential reward that is twice the planned risk. For example, a $100 planned risk corresponds to a $200 potential reward before costs and execution differences.
1:3 Risk-to-Reward
A 1:3 setup has a potential reward three times the planned risk. The actual suitability of any ratio depends on the trading strategy, probability of success and market conditions.
Risk-to-Reward and Win Rate
Risk-to-reward ratio and win rate are separate concepts. A strategy can have a relatively high reward multiple while also having fewer winning trades. Conversely, a strategy can have a higher win rate while targeting smaller rewards relative to risk.
Trading outcomes also depend on transaction costs, slippage, execution and whether actual results match the original trade plan.
| Reward Multiple | Break-Even Win Rate* |
|---|---|
| 1R | 50% |
| 2R | 33.33% |
| 3R | 25% |
| 4R | 20% |
*These are simplified mathematical break-even rates before spreads, commissions, slippage, taxes and other trading costs. They are not forecasts of trading performance.
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Frequently Asked Questions
What is a risk-to-reward ratio?
A risk-to-reward ratio compares the potential loss of a trade with its potential profit. A 1:2 ratio means the potential reward is twice the potential risk.
How do I calculate a 1:2 risk-to-reward trade?
First determine your risk distance between entry and stop-loss. Then set the potential reward distance at twice that amount. For example, if the risk distance is 10 price units, a 1:2 setup has a reward distance of 20 price units.
What does 2R mean in trading?
2R means the planned potential reward is two times the amount defined as one unit of risk. If 1R represents $100 of planned risk, 2R represents a $200 potential reward before trading costs.
Can I use this calculator for forex?
Yes. You can use the calculator for forex price levels. For accurate monetary results, make sure the position size and value-per-price-unit match your broker's contract and pip-value specifications.
Can I use this calculator for XAUUSD?
Yes. It can be used to compare the entry, stop-loss and target price distances for XAUUSD. For monetary calculations, confirm your broker's gold contract size and point or tick value.
Does a 1:3 ratio guarantee a profitable trade?
No. Risk-to-reward ratio does not guarantee a profitable outcome. Actual trading performance depends on many factors including market conditions, execution, costs and the probability of the trade reaching its target.
Should every trade have the same risk-to-reward ratio?
Not necessarily. Different trading strategies and market conditions can produce different entry, stop-loss and target structures. Traders should evaluate ratios within the context of their own documented trading plan and historical results.