Risk-Reward Ratio Calculator
The risk-reward ratio is one of the most fundamental concepts in trading and investing. Before entering any trade, a disciplined trader compares the potential profit (reward) against the potential loss (risk) to assess whether the trade is worth taking. A trade with a 1:3 risk-reward ratio means you risk $1 to potentially gain $3. Combined with your historical win rate, the risk-reward ratio determines whether a trading strategy has positive expected value, meaning it makes money over many trades on average. This calculator computes the R:R ratio from your entry, stop-loss, and take-profit prices. It also calculates expected value per $1 risked using your estimated win rate, and shows the minimum win rate required to break even with this R:R.
Risk-reward formulas
Risk = Entry - Stop Loss (long) or Stop Loss - Entry (short)
Reward = Take Profit - Entry (long) or Entry - Take Profit (short)
R:R Ratio = Reward / Risk
Min Win Rate = 1 / (1 + R:R Ratio) x 100
Expected Value = (Win Rate x Reward) - (Loss Rate x Risk)
Using R:R in practice
- Minimum acceptable R:R is generally 1:1; many traders require at least 1:2.
- With a 1:3 R:R you can be wrong 75% of the time and still break even (before costs).
- Positive expected value is more important than high win rate alone.
- Set stop-loss based on market structure, not on a fixed dollar amount, then verify R:R.
- If R:R does not meet your minimum, do not take the trade or widen the take-profit target.
Risk-reward ratio: frequently asked questions
What is the risk-reward ratio?
The risk-reward ratio (R:R) compares the potential profit of a trade to its potential loss. A 1:3 R:R means you risk $1 to potentially gain $3. Expressed as a single number (3.0), it is the ratio of reward to risk. A higher R:R means less trades need to be winners for the strategy to be profitable.
What is the minimum win rate needed to break even?
Minimum Win Rate = 1 / (1 + Reward/Risk). With a 1:2 R:R (reward twice the risk), you only need to win 33% of trades to break even. With a 1:3 R:R, you only need a 25% win rate. This is why high R:R setups are desirable even with lower win rates.
What is expected value (EV) in trading?
Expected value = (Win Rate x Reward) - (Loss Rate x Risk). If you win 40% of trades with a 1:2 R:R: EV = (0.40 x 2) - (0.60 x 1) = 0.80 - 0.60 = +$0.20 per $1 risked. Positive EV means the strategy is profitable over many trades; negative EV means it loses money long-term.
Is a 1:1 risk-reward ratio profitable?
A 1:1 R:R is profitable only if you win more than 50% of your trades (after accounting for spreads and commissions). Many retail traders use at least 1:2 or 1:3 R:R to allow for win rates below 50% while remaining profitable.
How do I set my take-profit and stop-loss to achieve a target R:R?
First set your stop-loss based on technical analysis (below a support level, above a resistance level, etc.). Then multiply the stop distance by your target R:R to find your take-profit distance. For example, a $2 stop and a 1:3 target means your take-profit should be $6 above your entry for a long trade.
Official sources
- FINRA: Day Trading - Your Dollars at Risk.
- SEC: Day Trading Tips - SEC.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.