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Risk/reward calculator
A planned reward-to-risk ratio compares the distance from entry to target with the distance from entry to stop. It describes the plan before costs and does not estimate the probability of reaching either level.
Updated August 31, 2026 · Educational information onlyTHE FORMULA
Reward-to-risk ratio = potential reward per unit ÷ risk per unit
For a long plan the stop must be below entry and target above it. For a short plan the stop must be above entry and target below it. Fees, slippage, gaps, and partial exits are not included.
WORKED EXAMPLE
See how the number is produced.
A long entry at $50, stop at $48, and target at $56 risks $2 per unit for $6 potential reward. The reward-to-risk ratio is 3:1 and the theoretical break-even win rate before costs is 25%.
HOW TO READ IT
Interpret the result with context.
- The ratio describes payoff geometry, not trade quality or likelihood.
- The break-even rate assumes every win and loss reaches the entered levels and ignores costs.
- Compare planned levels with actual exits in your journal to measure execution drift.
COMMON MISTAKES
Keep the inputs consistent.
- Reversing risk/reward and reward/risk without labeling the convention.
- Entering a stop or target on the wrong side of the entry.
- Assuming a larger target is equally likely to be reached.
- Ignoring fees, slippage, gaps, and partial exits.
COMMON QUESTIONS
Risk/reward calculator FAQ
Does a 3:1 ratio mean the trade is good?
No. It only means planned reward is three times planned risk. The setup still needs a defensible probability, execution plan, and realistic costs.
What is the break-even win rate for 2:1?
Before costs and assuming full wins and losses, it is 1 ÷ (1 + 2) = 33.33%.