How to calculate risk/reward ratio
Your risk/reward ratio compares how much you stand to make against how much you stand to lose on a single trade. For a long position the formula is:
R:R = (Target − Entry) ÷ (Entry − Stop)
For a short position the geometry flips — your target sits below entry and your stop above — so it becomes (Entry − Target) ÷ (Stop − Entry). The calculator infers the direction automatically from where your target lands relative to entry, and turns the ratio into the breakeven win rate you need: 1 ÷ (1 + ratio) × 100.
Worked example
You enter long at $100, set a stop at $95
and a target at $110.
Risk = $100 − $95 = $5. Reward = $110 − $100 = $10.
Ratio = $10 ÷ $5 = 2 : 1.
Breakeven win rate = 1 ÷ (1 + 2) = 33.33%.
What is a good risk/reward ratio
A ratio of 2 : 1 or better is a common benchmark — it means a single winner covers two losers, so you can be profitable while winning fewer than half your trades. Pushing the ratio higher (3 : 1, 4 : 1) lowers the win rate you need but usually means a wider, less-frequently-hit target. There is no universally correct number: the right ratio is the one your strategy can actually achieve consistently, after fees and slippage.
Frequently asked questions
- How do you calculate the risk/reward ratio?
- Divide your potential reward by your potential risk. For a long trade: (target − entry) ÷ (entry − stop). If a trade risks $5 to make $10, the ratio is 10 ÷ 5 = 2, written 2 : 1. The calculator infers direction automatically from where your target sits relative to entry.
- What is a good risk/reward ratio?
- Many traders look for at least 2 : 1, meaning the potential reward is twice the risk. A higher ratio lets you be profitable even with a sub-50% win rate, but it usually means a wider target that hits less often. The right number depends on your strategy and how frequently your trades reach target.
- What is the breakeven win rate?
- It is the minimum percentage of trades you must win to break even at a given ratio, calculated as 1 ÷ (1 + ratio) × 100. At 2 : 1 you only need to win 33.33% of the time; at 1 : 1 you need 50%. Anything above your breakeven win rate is, on average, profitable before fees.
- Do I need to enter a quantity?
- No. The ratio and breakeven win rate come from price alone, so leaving quantity blank still works. Add a quantity (and a contract multiplier for futures) to also see your dollar risk and dollar reward for that exact position size.