Risk to reward is the distance from entry to target divided by the distance from entry to stop. Enter those three prices below and the calculator returns the ratio, the R multiple, the dollar risk and reward at your position size, and the win rate that trade would need just to break even.
Risk to reward calculator
The cost field lets you see the ratio after friction: it is subtracted from the reward and added to the risk. Educational tool, not advice. A ratio describes a plan, not an outcome — the target only counts if it actually prints.
The formula, and what R means
Two lines of arithmetic, and one idea that makes every other trading number comparable.
R: one R is the distance from entry to stop. A 3R target is three times that distance.
R is the unit that makes trades of different sizes comparable. If you always risk the same fraction of the account, then a 2R win on a $2,000 account and a 2R win on a $200,000 account are the same result expressed in the same units. Twenty trades logged in R tell you something; twenty trades logged in dollars tell you mostly about how your account size changed. That is why the trading journal is worth keeping in R.
Two worked examples
A long
Entry 100.00, stop 98.00, target 106.00. Risk is 2.00 per share; reward is 6.00 per share. The ratio is 1 : 3 and the target is 3R. At 100 shares that is $200 at risk against $600 of planned reward, and the trade needs to work more than 25% of the time to break even.
A short
Entry 4,510 on an index future, stop 4,522, target 4,480. Risk is 12 points; reward is 30 points. The ratio is 1 : 2.5, or 2.5R, needing a win rate above 28.6% to break even. On Micro E-mini S&P 500 futures, where the minimum price fluctuation is 0.25 index points worth $1.25 per tick (CME Group contract specifications), 12 points is 48 ticks, so one contract risks $60 to make $150.
The break-even win rate table
This is the part of the ratio that most people never work out. Every ratio implies a minimum win rate, and the arithmetic is 1 ÷ (1 + ratio).
| Ratio | Break-even win rate | Result at 40% wins | Result at 60% wins |
|---|---|---|---|
| 1 : 1 | 50.0% | Losing | Winning |
| 1 : 1.5 | 40.0% | Break-even | Winning |
| 1 : 2 | 33.3% | Winning | Winning |
| 1 : 3 | 25.0% | Winning | Winning |
| 1 : 5 | 16.7% | Winning | Winning |
Read the table in both directions. A 1 : 3 trader can be wrong three times out of four and still grind forward. A 1 : 1 trader has to be right more than half the time forever, which is a far harder standard than it sounds. That is the whole argument behind why win rate is overrated as a headline number.
Why a good ratio on the screen is not a good ratio in the account
The calculator gives you the ratio your three prices imply. Reality applies three deductions to it.
- Costs come off the reward and go onto the risk. A 1 : 2 trade risking $100 that pays $12 in round-turn costs is really risking $112 to make $188 — a 1 : 1.68 trade. On small positions this is not a rounding error.
- Distant targets are less likely to print. You can manufacture any ratio you like by moving the target further away. The probability of reaching it falls at the same time, and the ratio on its own will not tell you that.
- Stops slip; targets do not. A limit target fills at your price or not at all, while a stop is a trigger that becomes a market order. The downside tail is longer than the upside one.
The evidence on retail outcomes is a useful reality check here. Analyses by national regulators across the EU found that 74% to 89% of retail investor accounts lose money trading contracts for difference, with average losses per client ranging from €1,600 to €29,000 (ESMA product intervention measures, 2018). Those accounts were not all using 1 : 1 targets. A ratio is a necessary condition for an edge, not a sufficient one.
How to set the target so the ratio means something
The order matters. Set the stop first, at the price where the idea is genuinely wrong — below the reclaimed level, outside the range, wherever invalidation actually lives. Then set the target at the next structural level price is realistically travelling to, not at whatever number makes the ratio look impressive. Only then read the ratio, and let it decide whether the trade is worth taking at all.
Trades that fail this test should be skipped rather than improved. Widening a target to rescue a ratio is the same error as tightening a stop to reduce risk: it changes the number without changing the trade. If the honest ratio is 1 : 0.8, the setup is telling you something.
Frequently Asked Questions
How do you calculate risk to reward on a trade?
Measure the distance from your entry to your stop, measure the distance from your entry to your target, and divide the second by the first. An entry at 100 with a stop at 98 and a target at 106 risks 2 points to make 6, which is a ratio of 3 to 1. The ratio is a property of the three prices only, so it is fixed the moment you place the trade and does not change with your position size.
What is a good risk to reward ratio?
There is no universally correct figure, because the ratio is only half of the equation. A ratio of 2 to 1 needs to be right more than 33.3 percent of the time to break even, while 1 to 1 needs more than 50 percent and 3 to 1 needs more than 25 percent. The right ratio is whichever one your actual win rate can support, which you only learn from a record of your own trades rather than from a rule of thumb.
What does R mean in trading?
R is one unit of risk, meaning the amount you lose if the stop fills. A target at 3R is a target worth three times that amount. Expressing results in R rather than dollars lets you compare a small trade with a large one, because a 2R win is a 2R win whether the account is 2,000 dollars or 200,000. It also stops a run of small wins from disguising one oversized loss.
Does a high risk to reward ratio guarantee profit?
No. A ratio is only a plan, and it becomes real only if the target actually prints before the stop does. Setting a distant target raises the ratio on paper and lowers the probability of reaching it, and costs such as spread, commission and slippage come out of the reward side while adding to the risk side. Nothing in trading guarantees a profit, and any source that suggests otherwise should be treated with suspicion.
Bottom line
The ratio is the cheapest filter in trading: three prices, one division, and a clear answer about whether a setup deserves your risk. Pair it with an honest record of how often you are actually right and you have the two halves of expectancy. For the concept in full, read the risk-reward ratio explained; for where the ratio sits in the wider framework, start at risk management in trading; and to turn the risk side into a size, use the position size calculator.