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RISKTOOL 01 / 09

Risk:Reward ratio calculator

Enter your entry, stop loss, and target. Get the risk-to-reward ratio and the minimum win rate needed to be profitable.

Position type
Entry price
$
Stop loss priceBelow entry price
$
Take profit priceAbove entry price
$
OUTPUT · LIVERR-01
RISK : REWARD RATIO
3.00 : 1
You need to win only 25.0% of trades like this to break even.
RISK PER UNIT$2,000.00
REWARD PER UNIT$6,000.00
BREAKEVEN WIN RATE25.0%
Rule of thumb: most systematic traders skip setups below 1.5 : 1.

Why risk:reward decides your edge

Risk:reward ratio is the most foundational concept in disciplined trading. It tells you, before you place a trade, how much you stand to lose if you are wrong versus how much you stand to make if you are right.

The calculation is simple. If you buy Bitcoin at $60,000, set a stop loss at $58,000, and target $66,000, your risk is $2,000 per coin and your reward is $6,000 per coin. The ratio is 1:3.

Why ratios matter more than win rate

Most beginning traders obsess over win rate. This is the wrong target. A trader with a 30% win rate and a 1:5 risk:reward ratio is more profitable than a trader with a 70% win rate and a 1:0.5 ratio. The math is unforgiving: profitability is win rate multiplied by average win, minus loss rate multiplied by average loss.

This is why professional trend traders accept losing the majority of their trades. They know one big winning trade can pay for ten small losses. Reversal traders and scalpers operate differently — they have high win rates but smaller ratios. Both can be profitable; only the math determines it.

The breakeven win rate

For any risk:reward ratio, there is a corresponding breakeven win rate — the percentage of trades you need to win just to not lose money. The formula is 1 / (1 + ratio).

  • 1:1 ratio → 50% breakeven
  • 1:2 ratio → 33.3% breakeven
  • 1:3 ratio → 25% breakeven
  • 1:5 ratio → 16.7% breakeven
  • 1:10 ratio → 9.1% breakeven

Any win rate above the breakeven number means you are profitable. This is the math that lets trend-followers tolerate losing streaks. Their setups have such favorable ratios that even modest win rates produce strong returns.

Picking the right ratio for your strategy

The right ratio depends on what your strategy is trying to capture. Mean-reversion trades typically have high win rates because they catch small bounces — these strategies survive on 1:1 to 1:2 ratios. Trend-following trades have lower win rates because most attempts fail, but winners can run 1:5 or 1:10. The dangerous combination is tight targets with wide stops — a 1:0.5 ratio means you need to win 67% of the time just to break even.

Beyond the ratio: realistic execution

The calculator assumes you actually hit your targets and stops. Real execution introduces slippage, fees, and partial fills. A 1:2 ratio on paper might become 1:1.7 after costs. This is why backtesting strategies with realistic execution matters more than theoretical ratios.

Backtest your strategy with realistic execution →

Frequently asked questions

The risk:reward ratio compares how much you stand to gain versus how much you could lose on a trade. A 1:2 ratio means you risk $1 to potentially make $2. Most professional traders look for setups with at least 1:2 or higher, because it allows them to be profitable even with a win rate below 50%.