Risk/reward
Your reward-to-risk ratio and the win rate you need just to break even.
Results
How it works
Reward to risk compares how much you stand to make with how much you stand to lose. The win rate you need to break even is 1 / (1 + reward-to-risk).
At 2 : 1 you only need to win 33.3% of trades to break even. At 1 : 1 you need 50%, before costs. Better ratios give you room to be wrong often.
What reward-to-risk means
Reward-to-risk compares how much you stand to gain if a trade works with how much you stand to lose if it does not. If you buy at $50, place a stop at $48 and aim for $56, you risk $2 to make $6, a ratio of 3 to 1. Traders often write it as 1:3 or as a number of R, where one R is the amount you risk, so this trade targets 3R.
The break-even win rate
The ratio tells you how often you need to be right just to break even, before costs: break-even win rate = 1 / (1 + reward-to-risk). At 1:1 you must win 50% of trades. At 1.5:1 you need 40%. At 2:1 you need 33.3%. At 3:1 you need only 25%. A higher ratio gives you room to be wrong often, which is why many traders will not take a setup below 2:1.
Why the ratio alone can mislead
A big target is not automatically good. A 5:1 target that is hit 10% of the time loses money, because the break-even rate at 5:1 is 16.7%. What matters is the combination of ratio and the real win rate of your setup, which is why the expectancy calculator on this site takes both. Test a setup on past trades before trusting any ratio you only hoped for.
Costs and slippage
Commissions, spreads and slippage reduce your reward and increase your risk. On a small stop they can eat a large share of the trade. If a stop is $0.20 wide and costs are $0.04 per share round trip, you are really risking $0.24 to make $0.56 less than you thought. Always check the ratio after costs.
Using the calculator
Enter your entry, stop-loss and target. The tool shows reward-to-risk, the win rate needed to break even, and the risk and reward per share or contract. It works for long and short trades, since it uses the distance between prices. Pair it with the position size calculator to turn a good ratio into a position that risks only what you intended.
Risk/reward FAQ
What is a good risk/reward ratio? Many traders look for at least 2:1, but the right number depends on your win rate. A scalper with a very high win rate can profit at under 1:1, while a trend trader with a low win rate needs 3:1 or more.
Is a higher ratio always better? No. Farther targets are hit less often, so a higher ratio usually lowers your win rate.
How do I use R multiples? Measure each trade result as a multiple of the amount you risked. A $300 win on a $100 risk is +3R, and a full stop-out is -1R. Journals built on R make results comparable across account sizes.
Does this work for options and futures? Yes, as long as you enter prices in the same units, such as option premiums or futures prices.