What is the risk-reward ratio in trading?

The risk-reward ratio compares the potential loss of a trade (entry price minus stop-loss) against its potential gain (target minus entry), helping you judge whether a trade is worth taking.

How do you calculate the risk-reward ratio?

Divide the distance from your entry to your stop-loss (risk) by the distance from your entry to your target (reward). A result of 1:3 means you risk one unit to potentially gain three.

What is a good risk-reward ratio?

Many traders look for a minimum of 1:2 or 1:3, meaning the expected reward is two to three times the risk. The ideal ratio depends on your strategy and win rate.

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Trading Tools

Risk Reward Ratio Calculator

Optimize your trading strategy. Enter your entry, target, and stop-loss levels to calculate risk-to-reward ratio and make calculated decisions.

Parameters

Entry Price (₹)

Stop Loss Price (₹)

Target Price (₹)

Quantity (Shares)

Trade Analysis

Risk Reward Ratio1 : 3.00

Risk Per Share₹5.00 (5.00%)

Reward Per Share₹15.00 (15.00%)

Total Risk₹500.00

Total Reward₹1,500.00

Visual Setup

TARGET ZONE+₹1,500 (15.00%)

ENTRY (₹100)

STOP LOSS ZONE-₹500 (5.00%)

Understanding Risk-Reward Ratio

The Risk-Reward Ratio measures the difference between the entry point of a trade to the stop-loss order (risk) and the profit target (reward). In trading, a higher risk-reward ratio is generally desired as it means you are seeking higher potential gains relative to the capital you are risking.

A ratio of 1:2 or higher means that even if you only win 40% of your trades, you can still remain profitable overall in the long run. Professional traders always size their entries and set stops to align with a favorable risk-reward structure.