Risk/Reward Ratios

The definition

Risk/reward (R:R) compares the distance from entry to stop against the distance from entry to target. Risking 25 pips to target 50 pips is 1:2 — you stand to make twice what you risk. Traders often express results in R multiples: that winner was +2R, that loss -1R.

The win-rate connection

R:R and win rate are two halves of one equation — expectancy. The break-even win rate for a given R:R is 1 / (1 + R):

• 1:1 needs more than 50% winners to profit
• 1:2 needs more than 33.3%
• 1:3 needs more than 25%
• 1:0.5 needs more than 66.7%

Neither a high win rate nor a high R:R means anything alone. A 90% win rate loses money if the rare losses are huge; a 1:5 R:R loses money if winners almost never complete. The Risk/Reward calculator in this hub shows this break-even table interactively.