Investment & Planning

Risk/Reward Ratio Calculator

Calculate your trade's risk-reward ratio and the minimum win rate needed to break even. Free — no sign-up needed.

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What is Risk/Reward Ratio Calculator?

The risk-reward ratio is one of the most important metrics in trading. It tells you how much you stand to gain relative to how much you risk on every trade. Our risk-reward ratio calculator computes the exact ratio between your potential profit and potential loss, along with the minimum win rate you need to break even. Understanding your risk-reward ratio before entering a trade is essential for long-term profitability. A favorable ratio means you can be wrong more often than right and still make money. For example, with a 1:3 risk-reward ratio, you only need to win 25% of your trades to break even. This calculator takes your entry price, stop-loss level, target price, and trade size to compute the dollar risk, dollar reward, risk-reward ratio, and break-even win rate. Use it to evaluate every trade before you place it.

Steps:

  1. Enter your planned entry price for the trade.
  2. Input your stop-loss price — where you will exit if wrong.
  3. Enter your target price — where you will take profits.
  4. Specify your trade size in number of shares.
  5. Review the risk-reward ratio and break-even win rate.
  6. Only take trades where the ratio justifies the risk.

Formula

Risk = |Entry Price − Stop-Loss| × Trade Size Reward = |Target Price − Entry Price| × Trade Size Risk:Reward Ratio = Reward ÷ Risk Break-Even Win Rate = 1 ÷ (1 + Risk:Reward Ratio) × 100

Use Cases

  • Evaluating stock trades before entering positions
  • Comparing multiple trade setups to find the best risk-reward
  • Setting realistic targets based on acceptable risk levels
  • Backtesting strategies with known win rates

Key Benefits

  • Quantify trade quality before risking capital
  • Know your minimum win rate to break even
  • Compare multiple setups objectively
  • Avoid trades with unfavorable risk-reward

Pro Tips

  • Always calculate R:R before entering any trade
  • Aim for at least 1:2 for swing trades
  • Combine R:R analysis with your strategy's historical win rate
  • Factor in commissions when calculating net reward

Common Mistakes to Avoid

  • Taking trades with ratios below 1:1 without high win rate
  • Moving targets arbitrarily to improve the ratio
  • Ignoring the probability of hitting the target
  • Not accounting for commissions and slippage

Key Terms Explained

Risk-Reward Ratio: Potential profit divided by potential loss
Break-Even Win Rate: Minimum win rate to not lose money
Expected Value: Average profit per trade over many repetitions
Risk per Trade: Dollar amount at risk if stop-loss is hit

Related Concepts

  • Position Size Calculator – Calculate exact shares to buy
  • Stop-Loss Take-Profit Calculator – Set exit targets
  • Drawdown Recovery Calculator – Understand recovery math

Example

You plan to buy a stock at $100 with a stop-loss at $95 and a target at $115. Trading 100 shares: Risk = |$100 − $95| × 100 = $500. Reward = |$115 − $100| × 100 = $1,500. Risk:Reward Ratio = $1,500 ÷ $500 = 3:1. Break-Even Win Rate = 1 ÷ (1 + 3) × 100 = 25%. You only need to win 25% of such trades to break even.

Frequently Asked Questions

What is a good risk-reward ratio?
A risk-reward ratio of at least 1:2 is considered good, meaning your potential profit is twice your potential loss. Professional traders often seek 1:3 or higher. However, the ratio must be evaluated alongside your win rate — a 1:1 ratio can be profitable with a 60%+ win rate.
How do I calculate the break-even win rate?
Break-even win rate = 1 ÷ (1 + Risk-Reward Ratio) × 100. For a 1:2 ratio, you need 1 ÷ (1 + 2) = 33.3% win rate to break even. For a 1:3 ratio, you only need 25%. This shows why higher risk-reward ratios are so powerful.
Is a higher risk-reward ratio always better?
Not necessarily. A very high risk-reward ratio (e.g., 1:10) often means your stop-loss is very tight or your target is unrealistically far away, resulting in a low probability of hitting the target. The best trades balance a favorable ratio with a realistic probability of success.
What risk-reward ratio do professional traders use?
Most professional traders aim for a minimum of 1:2, with many targeting 1:3 or higher. However, the optimal ratio depends on your strategy's win rate. A scalping strategy with a 70% win rate can be profitable at 1:1, while a trend-following strategy with a 40% win rate needs at least 1:2.
Can I have a negative risk-reward ratio?
A negative ratio would mean your stop-loss is above your entry (for a long trade) or your target is below your entry — essentially a trade with no profit potential. This usually indicates an error in your trade setup. Always ensure your target is beyond your entry in the direction of your trade.
How does position size affect the risk-reward ratio?
Position size doesn't change the risk-reward ratio — it only scales the dollar amounts. A 1:2 ratio remains 1:2 whether you trade 10 shares or 1,000 shares. However, position size determines the actual dollar risk and reward, which is why proper sizing is essential.
Should I adjust my target based on the risk-reward ratio?
Yes, but only if your target is technically justified. Don't arbitrarily move your target to achieve a better ratio. Instead, if the natural risk-reward ratio is poor (e.g., 1:0.5), consider skipping the trade or waiting for a better entry point that improves the ratio.
What is the relationship between win rate and risk-reward ratio?
They are inversely related in profitable strategies. A high win rate (70%+) can compensate for a lower risk-reward ratio (1:1 or even 1:0.8). Conversely, a low win rate (30-40%) requires a high risk-reward ratio (1:3 or better) to be profitable. The key is that (Win Rate × Reward) > (Loss Rate × Risk).
How do I use the break-even win rate?
The break-even win rate tells you the minimum percentage of winning trades needed to not lose money. If your strategy historically wins 55% of the time and your break-even rate is 40%, you have a 15% edge. This helps you evaluate whether a trade setup is worth taking.
Does the risk-reward ratio apply to short trades?
Yes, the calculation is identical for short trades. Risk = Entry − Stop-Loss (which is above entry for shorts), Reward = Entry − Target (which is below entry). The ratio and break-even win rate formulas work the same way regardless of trade direction.
What is the expected value of a trade?
Expected Value = (Win Rate × Average Reward) − (Loss Rate × Average Risk). A positive expected value means the trade is profitable over many repetitions. The risk-reward ratio and break-even win rate are derived from this fundamental concept.

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