Risk / Reward Ratio
1 : 2.00Potential risk compared with rewardRisk Reward Calculator
Calculate your trade's risk-to-reward ratio before entering a position.
Compare your stop loss and take profit to understand the potential risk and reward of a trade.
Results
Risk Distance
20.0 pips0.00200 price distanceReward Distance
40.0 pips0.00400 price distanceRisk Amount
$0.00Optional monetary riskPotential Reward
$0.00Based on the ratioPlan a trade in three steps
How to Use the Risk Reward Calculator
Use the risk reward calculator to compare a planned stop loss and take profit before entering a position.
- 1. Choose directionSelect Buy / Long or Sell / Short so price distances are measured in the correct direction.
- 2. Enter pricesAdd the entry, stop-loss, and take-profit prices from the planned setup.
- 3. Review the ratioCalculate the risk-to-reward ratio, distances, and optional monetary reward.
The optional risk amount does not change the ratio. It translates the ratio into a possible reward amount, before trading costs and execution differences.
What Is a Risk Reward Ratio?
A risk reward ratio compares how much a trade is planned to lose if price reaches the stop loss with how much it may gain if price reaches the take profit. The risk side is normally written first. A ratio of 1:2 means the reward distance is twice the risk distance, while 1:1 means the two distances are equal.
The ratio describes a price plan, not the probability that either level will be reached. Market gaps, spreads, commissions, slippage, and manual exits can make the realized result different from the plan. A forex risk reward calculator is therefore most useful as part of a broader process that includes position sizing, trade selection, and review.
How to Calculate Risk to Reward
First calculate the absolute risk distance between entry and stop loss in the correct direction. Then calculate the reward distance between entry and take profit. For a buy, the stop should be below entry and the target above it. For a sell, those conditions are reversed.
Risk Reward Ratio = Potential Reward ÷ Potential Risk
If a buy entry is 1.1500 and its stop is 1.1480, the risk is 0.0020, or 20 pips on a typical non-JPY forex pair. A target at 1.1540 is 0.0040, or 40 pips, above entry. Dividing 40 by 20 gives 2, displayed as 1:2. The calculation uses distance, so the result is the same whether it is expressed in price units, pips, or money when both sides use the same basis.
Risk Reward Ratio Example
- Direction
- Buy
- Entry
- 1.1500
- Stop loss
- 1.1480
- Take profit
- 1.1540
- Risk
- 20 pips
- Reward
- 40 pips
40 pips ÷ 20 pips = 2.00, or a 1:2 risk reward ratio.
With an optional risk amount of $100, the potential reward shown would be $200. This does not mean the trade will earn $200; it describes the planned outcome if the target is filled at the expected price. The actual result may also include spread, commission, swap, and slippage.
Why Risk Reward Matters in Trading
Reviewing potential risk and reward before entry can make trade decisions more consistent. It encourages a trader to identify the point where an idea is considered invalid, compare that distance with a realistic target, and avoid changing the plan simply because price begins to move.
Across a series of trades, average reward, average loss, and win rate work together. A ratio can support forex risk management and journaling, but no particular number guarantees profitability. Market conditions, execution quality, costs, and whether a strategy has a repeatable edge remain important.
What Does a 1:2 Risk Reward Ratio Mean?
A 1:2 setup plans two units of reward for each unit of risk. That could mean a 25-pip stop and 50-pip target, a $75 risk and $150 potential reward, or any other values with the same relationship.
The ratio does not say whether the stop or target is well placed. Both levels should come from a defined method and current market structure. Widening a target only to create a larger displayed ratio can make that target less likely to be reached.
Risk Reward Ratio vs Win Rate
Win rate measures the percentage of trades that close as winners, while the risk-to-reward ratio compares the average size of potential or realized winners with losses. They should be evaluated together. A method with many small wins can be offset by occasional large losses, and a method with fewer wins may rely on winners being meaningfully larger than losses.
For example, a theoretical strategy that consistently realizes a 1:2 ratio needs a lower break-even win rate before costs than a strategy that realizes 1:1. Real trading is less tidy: stops and targets may not fill at exact prices, results vary, and costs reduce expectancy. Use the calculator to describe an individual setup, then use a trading journal to compare planned ratios with actual outcomes over a meaningful sample. For trade volume, use the Forex Lot Size Calculator; to estimate a price-move result, use the Forex Profit Calculator.
Trading risk reward questions
Frequently Asked Questions
Clear answers about risk-to-reward ratios, stop losses, targets, and trade planning.A risk reward calculator compares the distance from entry to stop loss with the distance from entry to take profit. It expresses the result as a ratio, such as 1:2, so traders can review potential risk and reward before a trade.
Measure the potential loss from entry to stop loss, then measure the potential gain from entry to take profit. Divide potential reward by potential risk. A 40-pip target and 20-pip stop produce a 2.00 result, displayed as 1:2.
A 1:2 ratio means the planned reward is twice the planned risk. For example, risking $100 with a 1:2 setup gives a potential reward of $200 before spreads, fees, slippage, and execution differences.
A 1:3 ratio offers three units of potential reward for one unit of risk, but the ratio alone cannot determine whether a setup or strategy is suitable. Win rate, costs, execution, and the reliability of the trading method also matter.
A strategy with a lower win rate can have positive expectancy when average winning trades are sufficiently larger than average losses, but no ratio guarantees profitability. Historical results, costs, and consistent execution must also be considered.
With entry and take profit unchanged, moving the stop loss farther away increases the risk distance and reduces the reward-to-risk ratio. Moving it closer reduces the planned distance, although market movement and execution can cause the actual loss to differ.
With entry and stop loss unchanged, a farther take-profit price increases potential reward and the displayed ratio. A closer target reduces it. The target should still be based on a defined trading method rather than the ratio alone.
Yes. Enter forex entry, stop-loss, and take-profit prices for a buy or sell trade. For common non-JPY pairs the calculator interprets 0.0001 as one pip; higher-priced instruments use a 0.01 display increment.
You can compare XAU/USD entry, stop, and target distances. Gold brokers may label points, pips, or ticks differently, so verify the displayed price distance and your broker’s symbol specifications.
Yes. The calculator is free to use and does not require an account or signup. Its output is an estimate for educational and planning purposes, not financial advice or a promise of a trading outcome.
This calculator is provided for informational and educational purposes only. Results are estimates and do not include every trading cost or execution difference. Forex, gold, and CFD trading involves significant risk.