Risk Reward Calculator (R:R Ratio)
Quantify trade asymmetry before entering positions. This calculator measures your risk-to-reward ratio (R:R), compares upside gain against downside stop-loss risk, and computes the minimum win rate necessary to achieve long-term trading profitability.
Anticipated market execution price
Take-profit price order level
Protective stop-loss exit level
Reward multiple per unit of risk committed (e.g. 3.0 means 1:3 ratio)
How to Use This Calculator
- Enter your expected entry price.
- Enter your intended take-profit target price.
- Enter your designated stop-loss protective price.
- Confirm that the resulting R:R ratio meets your trading system criteria (typically ≥ 1:2).
Formula & Calculation Methodology
Risk-reward compares upside reward against capital exposed. The reciprocal determines the statistical threshold of winning trades required for equity preservation.
Worked Example
Long entry at $100 with target at $130 and stop-loss at $90
Frequently Asked Questions
What is considered a good risk-to-reward ratio?↓
Most seasoned discretionary and quantitative traders seek setups offering at least a 1:2 or 1:3 risk-to-reward ratio. At a 1:3 ratio, you can remain profitable even if you win only 35% of your trades.
How does risk-to-reward interact with win rate?↓
Trade expectancy combines win rate with average win/loss size. A high R:R ratio allows low win rates to generate handsome returns, whereas a low R:R requires very high win rates.
Can this calculator be used for short selling?↓
Yes. The calculation uses absolute distance metrics, correctly computing upside and downside parameters whether target is above or below entry.
Does a higher R:R ratio always mean higher profitability?↓
No. Ambitious price targets with tight stop-losses often have significantly lower statistical probability of execution, resulting in more consecutive stopped-out trades.
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Source Citation & Disclaimer
Informational tool only; not licensed tax, legal, or financial advice.