What is a good risk reward ratio for trading?

A good risk reward ratio is typically 1:2 or higher, meaning you risk $1 to potentially gain $2. Many successful traders use ratios of 1:3 or 1:4. The higher the ratio, the lower win rate you need to be profitable.

How do I calculate risk reward ratio?

Risk Reward Ratio = (Profit Target - Entry Price) / (Entry Price - Stop Loss). For example, if you buy at $10, set profit target at $13, and stop loss at $9, your ratio is (13-10)/(10-9) = 3:1.

What win rate do I need for a 3:1 risk reward ratio?

For a 3:1 risk reward ratio, you need a minimum win rate of 25% to break even. The formula is: Required Win Rate = 100 / (1 + Risk Reward Ratio). With 3:1 ratio: 100 / (1 + 3) = 25%.

Is this calculator free to use?

Yes, this Risk & Reward Calculator is completely free to use. No registration, downloads, or payments required. It works on all devices and browsers.

Can I use this calculator for forex, stocks, and crypto?

Yes, this calculator works for all trading markets including forex, stocks, crypto, commodities, and futures. The risk reward principles apply universally across all financial markets.

What is a good risk reward ratio for trading?

A good risk reward ratio is typically 1:2 or higher, meaning you risk $1 to potentially gain $2. Professional traders often target ratios of 1:3 or 1:4. The higher the ratio, the lower win rate you need to be profitable. For example, with a 3:1 ratio, you only need a 25% win rate to break even.

How do you calculate risk reward ratio?

Risk Reward Ratio = (Profit Target - Entry Price) / (Entry Price - Stop Loss). For example, if you buy at $100, set profit target at $130, and stop loss at $90, your ratio is (130-100)/(100-90) = 30/10 = 3:1.

What win rate do I need for a 2:1 risk reward ratio?

For a 2:1 risk reward ratio, you need a minimum win rate of 33.33% to break even. The formula is: Required Win Rate = 100 / (1 + Risk Reward Ratio). With 2:1 ratio: 100 / (1 + 2) = 33.33%.

Why is risk management important in trading?

Risk management protects your capital and ensures long-term profitability. It prevents emotional trading decisions, limits losses, and helps maintain consistency. Even with a 50% win rate, proper risk management with good risk/reward ratios can lead to profitable trading.

What's the difference between risk and reward in trading?

Risk is the potential loss (entry price minus stop loss), while reward is the potential profit (profit target minus entry price). The risk/reward ratio compares these two values to determine if a trade has favorable odds.

Can I use risk reward ratios for all markets?

Yes, risk reward ratios apply to all financial markets including stocks, forex, crypto, commodities, and futures. The mathematical principles remain the same regardless of the asset class.

Risk & Reward Calculator – Free Trading Calculator Tool

Risk & Reward Calculator

Calculate:

Entry Price

Profit Target

Stop Loss

Reward/Risk Ratio

3.00

Potential Gain $3.00

Potential Loss $1.00

Required Win Rate 25.00%

Place your win-rate

Min. ratio for the given win-rate: 0

Risk & Reward Calculator: Master Trading Risk Management | Complete Guide

Understanding Risk & Reward in Trading

The risk/reward ratio is the cornerstone of successful trading. It measures the potential profit of a trade against its potential loss, helping traders make informed decisions about whether a trade is worth taking.

What is Risk/Reward Ratio?

The risk/reward ratio compares how much you stand to lose versus how much you could gain from a trade. A 1:3 risk/reward ratio means you’re risking $1 to potentially make $3.

Risk/Reward Ratio = (Profit Target – Entry Price) ÷ (Entry Price – Stop Loss)

This fundamental formula helps determine if a trade has favorable odds

Why Risk Management Matters

Professional traders know that risk management is more important than being right. You can be wrong 60% of the time and still be profitable with proper risk/reward ratios. Here’s why:

Protects your trading capital from catastrophic losses
Removes emotional decision-making from trading
Creates consistency in your trading approach
Allows for long-term profitability even with lower win rates

Risk/Reward Calculations Explained

Core Calculations

📊 Calculate Risk/Reward Ratio

RR = (Target – Entry) ÷ (Entry – Stop)

Entry Price: $100

Profit Target: $130

Stop Loss: $90

Risk/Reward: 3:1

🎯 Calculate Entry Price

Entry = (Target + (Ratio × Stop)) ÷ (1 + Ratio)

Desired Ratio: 2:1

Profit Target: $120

Stop Loss: $90

Entry Price: $100

🚀 Calculate Profit Target

Target = Entry + (Entry – Stop) × Ratio

Entry Price: $50

Stop Loss: $45

Desired Ratio: 4:1

Profit Target: $70

Required Win Rate Formula

Understanding the minimum win rate needed for profitability is crucial:

Required Win Rate = 100 ÷ (1 + Risk/Reward Ratio)

For a 3:1 ratio: 100 ÷ (1 + 3) = 25% win rate needed

Real Trading Examples

Stock Trading Example

📈 Apple Inc. (AAPL) Trade

You identify a bullish pattern in AAPL and plan your trade:

Entry Price: $150.00

Profit Target: $165.00

Stop Loss: $145.00

Potential Profit: $15.00 (10%)

Potential Loss: $5.00 (3.33%)

Risk/Reward Ratio: 3:1

Required Win Rate: 25%

Forex Trading Example

💱 EUR/USD Trade

Trading the EUR/USD currency pair with technical analysis:

Entry Price: 1.1000

Profit Target: 1.1080

Stop Loss: 1.0960

Potential Profit: 80 pips

Potential Loss: 40 pips

Risk/Reward Ratio: 2:1

Required Win Rate: 33.33%

Risk/Reward Ratio Comparison

Different risk/reward ratios require different win rates for profitability. Here’s a comprehensive comparison:

Risk/Reward Ratio	Required Win Rate	Rating	Strategy Type
1:1	50.00%	Poor	High-frequency scalping
1:1.5	40.00%	Below Average	Short-term trades
1:2	33.33%	Good	Swing trading
1:3	25.00%	Excellent	Position trading
1:4	20.00%	Outstanding	Long-term trends
1:5	16.67%	Exceptional	Breakout strategies

Quick Wins for Better Risk Management

⚡ Immediate Action Items

Always set stop losses – Never enter a trade without knowing your exit point
Use the 2% rule – Never risk more than 2% of your account on a single trade
Target 1:3 minimum – Aim for at least 3:1 risk/reward ratio on all trades
Plan before you trade – Calculate your risk/reward before entering any position
Keep a trading journal – Track your actual vs planned ratios to improve

🎯 Real-Life Success Story

📊 Tesla (TSLA) Breakout Trade – January 2024

A trader identified Tesla breaking above resistance at $240. Using proper risk management:

Entry Price: $242.00

Stop Loss: $230.00 (below support)

Profit Target: $278.00 (next resistance)

Risk per share: $12.00

Reward per share: $36.00

Risk/Reward Ratio: 3:1

Position Size (2% rule): 83 shares ($10k account)

Actual Outcome: Target hit in 12 days

Profit Realized: $2,988 (29.9% account gain)

This single trade with proper risk management generated nearly 30% account growth while only risking 2% of capital.

Risk & Reward Calculator

Understanding Risk & Reward in Trading

What is Risk/Reward Ratio?

Why Risk Management Matters

Risk/Reward Calculations Explained

Core Calculations

Required Win Rate Formula

Real Trading Examples

Stock Trading Example

Forex Trading Example

Risk/Reward Ratio Comparison

Quick Wins for Better Risk Management

⚡ Immediate Action Items

🎯 Real-Life Success Story

Trade Profit/Loss Calculator

Compound Interest Calculator

Risk & Reward Calculator

Understanding Risk & Reward in Trading

What is Risk/Reward Ratio?

Why Risk Management Matters

Risk/Reward Calculations Explained

Core Calculations

Required Win Rate Formula

Real Trading Examples

Stock Trading Example

Forex Trading Example

Risk/Reward Ratio Comparison

Quick Wins for Better Risk Management

⚡ Immediate Action Items

🎯 Real-Life Success Story

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