How it works
Every trade plan has three prices: where you enter, where you admit you are wrong (the stop-loss) and where you plan to take profit (the take-profit). The distance from entry to stop is your risk; the distance from entry to target is your potential reward.
Dividing reward by risk gives the ratio, often called R. The calculator also shows the break-even win rate, which links the ratio to how often a strategy needs to be right.
Formula
Risk = |entry − stop|
Reward = |target − entry|
Ratio (R) = reward ÷ risk
Break-even win rate = 1 ÷ (1 + R)
The break-even formula comes from setting expected wins equal to expected losses: win rate × R = (1 − win rate) × 1.
Worked examples
All prices are illustrative.
Example 1: A long EUR/USD trade
- Entry: 1.0850
- Stop: 1.0820
- Target: 1.0940
Risk = 1.0850 − 1.0820 = 0.0030 (30 pips)
Reward = 1.0940 − 1.0850 = 0.0090 (90 pips)
R = 90 ÷ 30 = 3
Break-even win rate = 1 ÷ (1 + 3) = 25%
Over many trades with this setup, you would need to win more than one in four to come out ahead before costs.
Example 2: A short USD/JPY trade
- Entry: 150.00
- Stop: 150.60
- Target: 149.10
Risk = 150.60 − 150.00 = 0.60 (60 pips)
Reward = 150.00 − 149.10 = 0.90 (90 pips)
R = 0.90 ÷ 0.60 = 1.5
Break-even win rate = 1 ÷ 2.5 = 40%
Quick reference
| Ratio (R) | Break-even win rate |
|---|---|
| 0.5 | 66.7% |
| 1 | 50% |
| 1.5 | 40% |
| 2 | 33.3% |
| 3 | 25% |
Tips
- Base targets on the chart, not on a wish. A 5R target is meaningless if the price has strong resistance just above entry. See Support and resistance.
- Track your real win rate. The Trading Journal records average R and win rate so you can compare them with the break-even figure.
- Account for costs. On short-term trades, the spread can be a meaningful share of the risk distance.
- Size the trade separately. Ratio says nothing about how much money is at stake; use the Position Size Calculator for that.
- Learn more in Risk-reward ratio.
Risk note
A favorable ratio does not make a trade likely to succeed, and past win rates do not guarantee future ones. Stops can be filled at worse prices during fast markets, which changes the realized ratio. Trading carries a substantial risk of loss. This calculator is an educational planning aid, not advice.
Frequently asked questions
What is a good risk/reward ratio?
There is no universal answer. A higher ratio needs a lower win rate to break even, but distant targets are usually reached less often. The ratio only makes sense alongside your realistic win rate.
What does break-even win rate mean?
It is the percentage of trades you must win, at this ratio, for total wins to equal total losses before costs. Win more often than that and the strategy is profitable on paper; win less and it loses.
Why is the ratio shown as reward to risk?
The calculator expresses the result as R, the reward divided by the risk. A value of 2 means the potential gain is twice the potential loss, sometimes written 1:2 risk to reward.
Are trading costs included?
No. Spread and commission reduce the reward and increase the effective risk, so the real break-even win rate is slightly higher than shown.
Does it work for short trades?
Yes. For a sell, the stop sits above entry and the target below it. The calculator uses absolute distances, so the maths is the same.
Guide last reviewed .