Risk reward calculator

What the risk-reward ratio tells you

Every trade with a stop-loss and a take-profit has two possible clean endings. Price reaches the target and you collect the reward, or price reaches the stop and you take the loss. The risk-reward ratio, usually written R:R, puts those two outcomes side by side as a single number: how many units you stand to make for each unit you stand to lose.

Traders often call the amount at risk on one trade 1R. A trade that risks 30 pips and targets 60 is a 2R trade: if it works, it pays twice what it would have cost. Writing results in R rather than in pips or money makes trades comparable across instruments, account sizes and stop widths, which is why most trading journals use it.

On its own the ratio does not say whether a trade is good. It says what the trade has to achieve to be worth taking. That second number, the break-even win rate, is the one this calculator is really for.

The formula

For a buy (long) trade:

Risk = entry − stop-loss. Reward = take-profit − entry. R:R = reward ÷ risk.

For a sell (short) trade the stop sits above the entry and the target below it, so both subtractions flip: risk is stop minus entry, reward is entry minus target. The calculator checks that the levels sit on the correct side for the direction you choose, which catches the most common input mistake.

The break-even win rate follows directly. If you win a fraction w of trades, each win pays R:R and each loss costs 1, so the expected result per trade is w × R:R − (1 − w). Setting that to zero gives:

Break-even win rate = 1 ÷ (1 + R:R)

For forex pairs and gold the distances are converted into pips (0.0001 on most pairs, 0.01 on yen pairs, 0.1 on gold), and if you enter a lot size the pips are converted into money with the same pip values the pip value calculator uses. For stocks, indices or crypto, switch to price-only mode and the ratio is worked out from the raw price distances.

A worked example

A hypothetical EUR/USD buy, using the calculator's default values: entry 1.0850, stop-loss 1.0820, take-profit 1.0910, 0.5 lots on a US dollar account.

1. Risk: 1.0850 − 1.0820 = 0.0030, which is 30 pips.
2. Reward: 1.0910 − 1.0850 = 0.0060, which is 60 pips.
3. Ratio: 60 ÷ 30 = 2, written 1:2.
4. Break-even win rate: 1 ÷ (1 + 2) = 33.3%.
5. Money: at 0.5 lots one pip is worth $5, so the trade risks $150 to make $300.

The table under the result then shows what that ratio is worth at different win rates. At 40% the expectancy is +0.20R, or $30 a trade on average at this size. At 30% it is −0.10R: the ratio is attractive, but if trades like this only work three times in ten, they lose money over time.

A sell trade, and price-only mode

The same arithmetic runs in reverse for a short trade. Take a hypothetical gold sell at 2,350.00 with the stop above at 2,362.00 and the target below at 2,332.00, on 0.2 lots.

• Risk: 2,362.00 − 2,350.00 = 12.00, which is 120 pips on gold, where a pip is 0.10.
• Reward: 2,350.00 − 2,332.00 = 18.00, or 180 pips.
• Ratio: 180 ÷ 120 = 1:1.5, with a break-even win rate of 40%.
• Money: one pip on 0.2 lots of gold is $2, so $240 at risk against $360 of reward.

Notice that the stop is only about half a percent of the gold price away, yet it is 120 pips. Gold moves in much larger pip steps than a major currency pair, so the same percentage risk on the account buys a much smaller position. That is the job of the position size calculator; this page only compares the two sides of the trade.

For shares, indices or crypto, choose price only in the first field. The ratio and the break-even win rate are worked out from the raw price distances, and the stop is also shown as a percentage of the entry price, which is the more natural measure outside forex. Pips and money values are left out in this mode because contract sizes differ too much between markets to assume one.

Using the ratio well, and the usual mistakes

Place the stop first, then the target. The stop belongs where the trade idea is proven wrong, usually beyond a swing high or low or a level the setup depends on. The target belongs where price is realistically likely to get to. Moving either one just to make the ratio look better produces a stop that gets hit by ordinary noise or a target that is rarely reached.

Judge the ratio together with the win rate. A 1:3 setup that works 20% of the time loses money; a 1:0.8 setup that works 65% of the time makes it. If you keep a journal, the win rate calculator tells you which of these you actually have. Our lesson on win rate versus risk-reward goes through the trade-off in more depth.

Account for costs. The spread is paid on entry, so a buy starts slightly underwater. On a 10-pip stop a 1-pip spread is 10% of your risk. Commission and overnight swap are on top.

Keep the money side separate. The ratio says nothing about how much to risk. Decide the money at risk with the position size calculator, or let the stop-loss calculator work out the stop, the targets and the lot size together.

Partial exits change the real ratio. If you close half the position at 1R and move the stop to entry, the trade's actual reward-to-risk is a blend of the two exits, not the figure for the final target.

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