Risk Management

Risk-Reward Ratio

Potential reward divided by potential risk on a trade — comparing what you stand to gain against what you're risking to lose.

Risk-reward ratio compares how much you stand to gain (reward, typically your profit target) against how much you’re risking to lose (risk, typically your stop-loss distance) on a specific trade: Risk-Reward Ratio = Potential Reward ÷ Potential Risk.

See the full formula, breakeven win rate connection, and worked examples in Risk-Reward Ratio: How to Evaluate Every Trade.