Risk
What is Risk to reward ratio?
By the verify.trading team · Last reviewed · How we write
The risk to reward ratio compares how much you stand to gain if a trade works with how much you stand to lose if it does not. A trade risking 30 pips to make 90 pips is 1:3.
Key points
- Reward distance / risk distance.
- Needs to be read with win rate.
- Costs such as spread reduce the real ratio.
Risk to reward ratio explained
It is calculated as the distance from entry to target divided by the distance from entry to stop. On its own it does not say whether a trade is good, because it ignores how likely the target is to be reached.
It matters most alongside win rate: the lower your ratio, the higher a win rate you need to break even.
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