Reward-to-risk ratio

A trader who wins 40% of the time can be comfortably profitable. A trader who wins 70% of the time can be slowly going broke. The difference is how much each win and each loss is worth.

Measuring a trade before you take it

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A planned trade with the two distances that define its ratio.

The reward-to-risk ratio compares the distance to the target with the distance to the stop. Traders call the stop distance 1R and describe outcomes in R: a 2:1 trade that hits its target makes +2R; any trade that hits its stop makes −1R.

The break-even win rate

Every ratio implies a win rate below which you lose money:

Break-even win rate = 1 ÷ (1 + R)

Ratio	Win rate needed
0.5 : 1	67%
1 : 1	50%
2 : 1	33%
3 : 1	25%

So at 2:1 you can lose two trades in three and still break even, before costs.

Try it

Entry priceStop lossTake profit

Risk

Reward

Reward-to-risk

Win rate needed to break even

Break-even win rate = 1 ÷ (1 + R), where R is the reward-to-risk ratio. Costs push the real figure a little higher.

Notice how moving the target further away raises the ratio and lowers the win rate you need, while moving the stop closer does the same thing but makes the stop easier to hit. The ratio is only useful if the stop and target are placed where the chart says, not where the maths looks nice.

Quick check

1. Question 1 of 3

   Entry 1.2700, stop 1.2660, target 1.2800. What is the reward-to-risk ratio?

   A2.5 : 1B1 : 2.5C4 : 1

Go deeper: Risk-reward ratio explained: why win rate isn’t everything · Forex risk management: the complete guide · Trading Expectancy: The Number That Says If a Strategy Works