risk-managementForexCryptoTradingRisk Management
Risk Reward Ratio
The ratio comparing the potential loss of a trade to its potential profit.
Plain-English Meaning
This ratio simply compares how much you are risking to how much you expect to make. A 1:2 ratio means you are risking $1 to potentially make $2.
Why It Matters
A strong risk reward ratio allows you to be wrong on the market direction more than half the time and still remain profitable overall.
Simple Example
If your stop loss is set to risk $50, and your take profit target is set to make $150, your risk reward ratio is 1:3.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Taking trades with a negative ratio, such as risking $100 to make $20. One loss will wipe out multiple winning trades.