Risk-Reward Ratio Calculator
Calculate the risk-reward ratio of a trade from entry, stop-loss, and take-profit prices.
How to use this tool
- Enter your planned entry price.
- Enter your stop-loss price (below entry for a long, above for a short).
- Enter your take-profit target price.
- Read the risk-reward ratio — aim for 1:2 or higher.
A risk-reward ratio of 1:2 or better means your potential profit is at least twice your potential loss. Most professional traders look for at least 1:2. Not financial advice.
Formula
Risk (per unit) = |entry − stop|
Reward (per unit) = |target − entry|
Risk-Reward Ratio = reward ÷ risk
How it works
The calculator measures how many dollars of potential profit you stand to gain for every dollar you risk on a trade. Risk is the absolute price distance from entry to stop-loss; reward is the absolute distance from entry to take-profit target. Dividing reward by risk gives the ratio expressed as X:1, where X is the reward multiple.
A ratio above 2:1 is commonly considered acceptable in discretionary trading, and many systematic strategies require 3:1 or higher to remain profitable even with a win rate below 50%. The ratio is purely geometric — it says nothing about the probability that price will reach the target before the stop.
Worked example
Worked example
- Risk = |$100 − $95| = $5 per unit.
- Reward = |$115 − $100| = $15 per unit.
- Risk-Reward Ratio = $15 ÷ $5 = 3.
Risk: $5; Reward: $15; Risk-Reward Ratio: 3:1
Key terms
- Risk-Reward Ratio (RRR)
- The ratio of potential profit to potential loss on a single trade, expressed as X:1. A 3:1 ratio means you aim to gain $3 for every $1 risked.
- Entry price
- The price at which a trade is opened. It is the reference point from which both risk (downside) and reward (upside) are measured.
- Stop-loss price
- The price level at which the trade is closed to limit losses. It defines the maximum acceptable loss per unit held.
- Take-profit (target) price
- The price level at which the trade is closed to lock in gains. Together with the stop, it defines the intended reward.
- Break-even win rate
- The minimum percentage of trades that must be winners to avoid net losses, given a specific RRR. For a 3:1 ratio it is 1 ÷ (1 + 3) = 25% — even winning only 1 in 4 trades is theoretically profitable.
Frequently asked questions
- What is a good risk-reward ratio?
- Most traders target a minimum of 1:2 (risk 1 to potentially make 2). A 1:3 ratio is excellent — it means you only need to win 25% of trades to break even.
- Does the ratio work for short trades?
- Yes — for shorts, your stop is above entry and your target is below. The calculator uses absolute differences, so it works identically for long and short positions.