Trading Tools
Risk/Reward Calculator
Evaluate the risk-to-reward ratio of any trade before you enter. Understanding your R:R helps you make rational trading decisions and maintain a profitable edge over time, even with a modest win rate.
Why Risk-to-Reward Matters
The risk-to-reward ratio (R:R) compares how much you stand to lose versus how much you stand to gain on a trade. A trader with a 1:2 R:R only needs to win 33.3% of the time to break even. This means you can be wrong on two out of every three trades and still not lose money. Professional traders focus on maintaining favorable R:R ratios because it gives them a mathematical edge, allowing them to be profitable even without an exceptionally high win rate.
Parameters
Enter your trade setup details below
Buying, you profit when price goes up
The price at which you plan to enter the trade
Must be below entry price for long positions
Must be above entry price for long positions
Optional, Dollar amounts
Enter to see dollar risk and reward amounts
Percentage of account risked on this trade
Results
Your risk/reward analysis
Risk-to-Reward Ratio
1:2.00
Favorable ratio, strong potential edge
Risk
50.0 pips
|Entry - Stop Loss|
Reward
100.0 pips
|Entry - Take Profit|
Breakeven Win Rate
33.3%
Minimum to break even at this R:R
R:R Ratio
1:2.00
Reward / Risk
Trade Setup
Formula
How risk-to-reward is calculated
Calculate Risk (in pips)
Risk = |Entry Price - Stop Loss Price|
|1.08500 - 1.08000| = 50.0 pips
Calculate Reward (in pips)
Reward = |Entry Price - Take Profit Price|
|1.08500 - 1.09500| = 100.0 pips
Risk-to-Reward Ratio
R:R = Reward / Risk
100.0 / 50.0 = 2.00 (displayed as 1:2.00)
Breakeven Win Rate
Win Rate = 1 / (1 + R:R) x 100
1 / (1 + 2.00) x 100 = 33.3%
Risk-to-Reward Breakeven Reference
The minimum win rate needed to break even at each risk-to-reward ratio
| R:R Ratio | Breakeven Win Rate | Can Be Wrong | Assessment |
|---|---|---|---|
| 1:0.5 | 66.7% | 33.3% of the time | Unfavorable, requires high win rate |
| 1:1 | 50.0% | 50.0% of the time | Neutral, coin flip breakeven |
| 1:1.5 | 40.0% | 60.0% of the time | Favorable, commonly targeted |
| 1:2 | 33.3% | 66.7% of the time | Favorable, commonly targeted |
| 1:3 | 25.0% | 75.0% of the time | Strong, professional standard |
| 1:4 | 20.0% | 80.0% of the time | Exceptional, rare but very powerful |
| 1:5 | 16.7% | 83.3% of the time | Exceptional, rare but very powerful |
Realistic vs. Ideal R:R Ratios
While higher risk-to-reward ratios look attractive on paper, there is a practical trade-off. As you widen your take profit target relative to your stop loss, the probability of price reaching that target generally decreases. A trade with a 1:5 R:R may only need a 16.7% win rate to break even, but actually winning that often may be difficult in practice.
Most professional traders aim for a 1:2 to 1:3 risk-to-reward ratio as a practical sweet spot. This allows for a realistic win rate (33-50%) while still building a meaningful edge. The key insight is this: you do not need to be right most of the time to be profitable, you just need your winners to be larger than your losers.
For educational purposes only. Not financial advice. Risk-to-reward calculations are theoretical and do not account for spreads, slippage, commissions, or swap fees. Actual results will vary. Trading forex involves significant risk of loss.