Risk Reward Ratio: How to Calculate It, With Examples

What you'll learn

• What the risk reward ratio is and how it is written.
• How to calculate it in pips and in money from an entry, a stop loss and a take profit.
• The win rate each ratio needs just to break even.
• How the ratio and your win rate work together to decide the result of many trades.

This lesson is part of the Risk Management module.

What is the risk reward ratio?

The risk reward ratio compares how much you would lose if the price reaches your stop loss with how much you would gain if it reaches your take profit. Both are measured from your entry price, before the trade opens. A trade that risks 25 pips to aim for 50 pips has a risk reward ratio of 1:2.

The risk reward ratio calculator works it out from your entry, stop loss and take profit. Setting the two levels is covered in the stop loss and take profit lesson.

Definitions

• Risk: the distance from your entry to your stop loss, in pips or in money.
• Reward: the distance from your entry to your take profit, in the same units.
• Win rate: the share of your trades that reach the take profit, written as a percentage.
• Break-even win rate: the win rate at which the wins exactly cover the losses, so you finish flat.

How is the risk reward ratio written?

This lesson writes the risk reward ratio as risk first, then reward, so 1:2 means you risk 1 unit to aim for 2 units. Some sources write reward first, so the same trade appears as 2:1. Check which order a source uses before comparing figures.

Some sources give the ratio as one number: a 1:2 trade is 0.5 as risk ÷ reward, or 2 as reward ÷ risk.

1. The entry price, at zero.
2. The stop loss, one unit of risk below the entry.
3. The take profit, three units above the entry, which makes this a 1:3 trade.
4. Both outcomes are drawn the same way, because the chart cannot tell you which one the price will reach first.

How do you calculate the risk reward ratio?

To calculate the risk reward ratio, measure the distance from entry to stop loss and from entry to take profit in pips, then divide the reward by the risk. The answer is the number after the colon. To turn pips into money, multiply each distance by the pip value for your position size.

1. Risk in pips = entry − stop loss (for a buy).
2. Reward in pips = take profit − entry (for a buy).
3. Ratio = 1 : (reward ÷ risk).
4. Money at risk = risk in pips × pip value. Money aimed for = reward in pips × pip value.

On a sell, the stop loss sits above the entry, so subtract the other way round.

Worked example

You buy EURUSD at 1.08500 with a stop loss at 1.08250 and a take profit at 1.09000. For a currency pair quoted in US dollars, one standard lot is worth about $10 per pip, so 0.20 lot is worth about $2 per pip. The pip value calculator works this out for other pairs and sizes.

The ratio is 50 ÷ 25 = 2, written 1:2. You risk $50 to aim for $100.

Why does the risk reward ratio matter?

The risk reward ratio matters because it makes you set your possible loss and your target before the trade opens, not after. It puts every trade plan on the same scale, so you can compare them. It also tells you the win rate a plan needs just to break even, shown in the next section.

What win rate does each risk reward ratio need?

Every risk reward ratio has a break-even win rate, found with one formula: risk ÷ (risk + reward). A 1:2 trade gives 1 ÷ (1 + 2) = 33.3%, so you need to win at least one trade in three just to finish flat before costs.

A bigger reward lowers the win rate you need. Once costs are counted, the real bar is a little higher than the table shows.

Work out the win rate you need

How do the risk reward ratio and win rate work together?

The ratio sets the size of each win against each loss, and the win rate sets how often each happens, so the result of many trades depends on both together. The same 1:2 ratio finishes positive or negative depending on how many trades reach the target, which is why skilled traders track the two side by side.

Here are two hypothetical runs of ten trades, each risking $50 to aim for $100:

One trade separates the two lines, which is why traders judge a method on its win rate over a large sample of trades, not on ten. Combining win rate and ratio into one figure, called expectancy, is covered in a later module.

Why are far targets reached less often?

A target placed further away gives the price more room to turn back or hit your stop loss first. Moving the take profit from 50 to 150 pips turns 1:2 into 1:6 on paper, but the price must travel three times as far your way. A better-looking ratio usually means a lower chance of reaching the target.

How does the spread change the real risk reward ratio?

The spread makes the real risk reward ratio worse than the planned one, because it is added to every loss and taken off every win. You buy at the ask and the platform closes a buy at the bid, so each trade pays the spread once, whichever level is reached. The smaller the planned distances, the more the spread matters.

MetaTrader 5 checks a buy's stop loss and take profit against the Bid price and a sell's against the Ask. The gap between them is explained in the spread, commission and swap lesson.

With an illustrative 1.5-pip spread at $2 per pip, each trade costs 1.5 × $2 = $3.

On the ten-trade runs, costs turn +$100 into 4 × $97 − 6 × $53 = +$70, and −$50 into 3 × $97 − 7 × $53 = −$80. Skilled traders build costs into the ratio before they enter, not after.

What are the limitations of the risk reward ratio?

The main limitation is that the ratio is a plan made before the trade, and the real loss depends on where the stop fills. A stop loss closes at the next available price, so in a fast market or a weekend gap the loss can be larger than planned. Skilled traders size for this.

• A triggered stop order becomes a market order, and the US SEC's investor site notes the price you get may differ from the stop price in a fast-moving market.
• Moving the stop loss further away after opening raises the risk.
• How much of your account one trade risks is a separate decision, covered in the position sizing lesson. The position size calculator works it out.

Try it on demo

On a MetaTrader 5 demo account, open a small buy on EURUSD with a stop loss 25 pips below and a take profit 50 pips above. Note the spread in Market Watch and work out the ratio after costs.

What is a good risk reward ratio?

A good risk reward ratio is one whose break-even win rate sits below the win rate your method actually achieves. A 1:3 trade that reaches its target 20% of the time loses money, while a 1:1 trade that wins 60% of the time comes out ahead, before costs. Track both in your trade log.

How do you calculate a 1:2 risk reward ratio?

Set the take profit twice as far from your entry as the stop loss. For a buy at 1.08500 with a stop at 1.08250, the risk is 25 pips, so a take profit 50 pips above, at 1.09000, makes the trade 1:2.

What does a 1:3 risk reward ratio mean?

A 1:3 risk reward ratio means you risk 1 unit to aim for 3 units, such as a 20-pip stop loss with a 60-pip take profit. It needs a win rate above 25% to finish ahead before costs.

Is a 1:1 risk reward ratio bad?

Not on its own. A 1:1 ratio needs a win rate above 50% to finish ahead before costs. Whether that is realistic depends on the method, the market and the costs, not on the ratio.

• MetaQuotes, MetaTrader 5 Help: Basic Principles, accessed 19 October 2026: stop loss is used to limit losses and take profit to close at a target; on long positions both are checked against the Bid price and on short positions against the Ask. https://www.metatrader5.com/en/terminal/help/trading/general_concept
• US Securities and Exchange Commission, Investor.gov, Stop Order, accessed 19 October 2026: when the stop price is reached a stop order becomes a market order, and the execution price may differ from the stop price, especially in a fast-moving market. https://www.investor.gov/introduction-investing/investing-basics/glossary/stop-order