Risk/Reward Ratio Calculator
Calculate risk-to-reward ratio, reward multiplier, and required break-even win rate.
Professional trade parameters advise risking at most 1% to 2% of equity per transaction.
How the Calculation Works
Read parameters and compute total exposure: multiply order quantity by contract unit multiplier.
Evaluate terminal return at the selected target price using strict financial mathematical boundary logic.
Deduct upfront capital commitments, taxes, or net debits to produce final net profit or loss realization.
Calculation Formula
Example Calculation
Long setup with Entry at ₹100, Stop Loss at ₹95, and Target at ₹115.
A 1:3 risk/reward ratio means the trade remains statistically profitable over time with only a 25% win rate.
Assumptions & Parameters
- Calculations evaluate price point distances; execution slippage and commissions are excluded.
Frequently Asked Questions
What is a risk-to-reward ratio?
A ratio comparing potential trade loss (distance to stop-loss) against anticipated profit (distance to target).
What is considered a good risk/reward ratio?
Professional traders typically seek a minimum risk-to-reward ratio of 1:2 or 1:3.
How is break-even win rate calculated from R:R?
Break-even win rate equals 1 divided by (1 plus the Reward-to-Risk ratio). A 1:2 ratio requires a 33.3% win rate.
Can a low risk/reward trade still be profitable?
Yes, if the strategy maintains an exceptionally high win rate (e.g., 75%+), though risk of large drawdowns remains.
Why is risk/reward asymmetry important?
Asymmetry allows you to remain profitable even when losing more trades than you win.
Does this ratio account for transaction friction?
No. Transaction costs slightly reduce net reward and increase net risk.