Favorable ratio
This content is for educational purposes only and does not constitute financial advice. This tool provides estimates and should not be your sole basis for trading decisions.
How This Calculator Works
The risk-to-reward ratio compares the distance from your entry to your stop loss (your risk) against the distance from your entry to your take profit (your potential reward):
Risk = |Entry price − Stop loss price|
Reward = |Take profit price − Entry price|
Ratio = Reward ÷ Risk
A ratio of 1:3, for example, means you're risking one unit to potentially gain three. As explained in our risk management guide, a favorable risk-to-reward ratio means you don't need to win most of your trades to be profitable overall — with a 1:3 ratio, winning roughly a third of your trades can still break even before costs.
Why Check This Before Every Trade
It's easy to focus only on whether a trade "feels right" and skip the math. But two trades that look equally appealing can have very different risk-to-reward profiles — one might offer 1:0.5 (risking more than you stand to gain), while another offers 1:3. Checking this number consistently, before entering, helps filter out setups that aren't worth the risk even if the underlying analysis seems reasonable.
Frequently Asked Questions
What's considered a "good" risk-to-reward ratio?
There's no universal number, but many traders look for at least 1:2 or 1:3, since it allows profitability even with a win rate below 50%. The right target depends on your overall strategy and historical win rate.
Does a good risk/reward ratio guarantee a profitable trade?
No — it's one factor among several. A favorable ratio improves the mathematics of your strategy over many trades, but any individual trade can still result in a loss.
How do I decide where to place my stop loss and take profit?
This calculator tells you the ratio once you've chosen your levels — for guidance on how to set stop loss and take profit levels themselves, see our risk management guide or use the stop loss & take profit calculator.