Risk/Reward Ratio Calculator
Calculate risk-to-reward ratio, breakeven win rate, and expected value per trade from your entry, stop loss, and take profit levels for any setup.
Risk-reward ratio (RRR) measures how much potential profit you stand to gain for every dollar you are willing to risk on a trade. It is the foundation of professional position management and directly determines the minimum win rate you need to be profitable.
Core formula: Risk-Reward Ratio = Potential Profit ÷ Potential Loss
Where:
- Potential Profit = Entry Price − Take-Profit Price (for short) OR Take-Profit Price − Entry Price (for long)
- Potential Loss = Entry Price − Stop-Loss Price (for long) OR Stop-Loss Price − Entry Price (for short)
Break-even win rate formula: Minimum Win Rate = 1 ÷ (1 + RRR)
This tells you the minimum percentage of trades you must win to break even, assuming all wins are the same size and all losses are the same size.
Expected Value (EV) per trade: EV = (Win Rate × Avg Win) − (Loss Rate × Avg Loss) A positive EV means the strategy is profitable in the long run.
What each variable means:
- Entry price — the price at which you open the trade
- Stop-loss — the price at which you exit with a loss; a non-negotiable safety level based on technical analysis
- Take-profit — the target price where you close the trade for a gain
- RRR — expressed as 1:X (e.g., 1:2 means risk $1 to make $2)
Reference: minimum win rates by RRR
- 1:1 RRR — need 50% win rate to break even
- 1:2 RRR — need 33% win rate to break even
- 1:3 RRR — need 25% win rate to break even
- 1:4 RRR — need 20% win rate to break even
Worked example: Stock entry: $100.00 Stop-loss: $96.00 (risk = $4.00) Take-profit: $112.00 (reward = $12.00)
RRR = $12 ÷ $4 = 3:1 Minimum win rate = 1 ÷ (1 + 3) = 25%
With a 40% win rate and this setup: EV = (0.40 × $12) − (0.60 × $4) = $4.80 − $2.40 = +$2.40 per trade
A consistently positive EV, maintained over many trades, is what separates professional traders from gamblers.