What is the risk/reward ratio?
The risk/reward ratio compares how much you stand to lose if a trade hits your stop with how much you stand to gain if it hits your target. A 1:3 trade risks $1 to make $3.
Win rate and expectancy
Expectancy per trade = (win% × avg win) − (loss% × avg loss). At 1:2 you break even with a win rate of about 33.3%; at 1:3, 25%.
| R:R | Break-even win rate |
|---|---|
| 1 : 1 | 50.0% |
| 1 : 1.5 | 40.0% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25.0% |
| 1 : 4 | 20.0% |
| 1 : 5 | 16.7% |
What does the risk/reward ratio measure?
It compares the potential loss to the potential gain on a hypothetical trade. Whether a ratio is workable depends on win rate: the break-even win rate is 1 / (1 + R), before fees.
How do fees change the math?
Commissions, spreads and slippage add to every loss and subtract from every win, so the net R:R is always lower than the gross R:R, and the break-even win rate goes up.
What is expected value per trade?
EV = (win rate × net gain) − (loss rate × net loss). It is a statistical average over many hypothetical trades, not a forecast for any single trade.
How is risk/reward calculated?
For a long trade: risk = entry − stop, reward = target − entry, and the ratio is reward ÷ risk. For a short trade the subtractions are reversed.
How is position size calculated?
Position size = (account × risk %) ÷ (distance from entry to stop). For example, 1% of a $10,000 account with a $5 stop distance is 20 units, before fees. This calculator also subtracts commissions and per-side fees.