Orders & execution · Intermediate

Risk-Reward Ratio Explained

A 1-minute lesson from the MarketPro academy, one of 16 in orders and execution.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

Short answer

The risk-reward ratio compares how much a trader stands to lose if a trade goes wrong against how much they stand to gain if it goes as planned. It is typically calculated by comparing the distance from entry to a stop-loss level against the distance from entry to a take-profit level.

Why It Is Useful

A favorable risk-reward ratio means the potential gain on a trade is larger than the potential loss, before considering the probability of either outcome.
Risk-reward alone does not determine profitability—it must be considered alongside the likelihood of a trade actually reaching its target versus its stop.
A strategy with a lower win rate can still be sustainable over time if the average winning trade is meaningfully larger than the average losing trade, and vice versa.

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For example, a hypothetical trade risking 50 pips to potentially gain 100 pips has a 1:2 risk-reward ratio—twice as much potential gain as potential loss on that individual trade, though this says nothing on its own about how often such a trade might actually succeed.

Evaluating risk-reward before entering a trade—rather than only after the fact—encourages more deliberate planning around exit points. It does not guarantee a profitable outcome on any individual trade, since markets can move against even a well-planned setup with a favorable ratio.

Lesson 13 of 16 in Orders and execution

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Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

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Not investment advice. Past performance is not indicative of future results.