Evaluate your trade setup by calculating the risk reward ratio before entering any position. Professional traders use this risk reward calculator to ensure potential rewards justify the risk taken.
Risk/Reward Calculator
Reward (Pips): - pips
Ratio: -
How to Use This Calculator
Step 1: Enter your planned entry price
Step 2: Enter your stop loss price (where you’ll exit if wrong)
Step 3: Enter your take profit price (your profit target)
Step 4: Click “Calculate Risk/Reward Ratio”
The calculator will show you:
- Risk/reward ratio (e.g., 1:2, 1:3)
- Risk in pips
- Reward in pips
- Color-coded recommendation (Good/Acceptable/Poor)
What is Risk/Reward Ratio?
Risk/reward ratio compares how much you’re risking to how much you could potentially gain on a trade.
Example:
- Entry: 1.1000
- Stop Loss: 1.0950 (risk 50 pips)
- Take Profit: 1.1100 (reward 100 pips)
- Risk/Reward: 1:2 (risk $1 to make $2)
Professional Trading Standards
Minimum Ratios:
1:2 Ratio – Minimum Standard: Professional traders typically require at least 1:2 risk/reward ratio. This means risking 50 pips to make 100 pips.
1:3 Ratio – Excellent: A 1:3 ratio is considered excellent. Even with a 40% win rate, you’ll be profitable long-term.
1:1 Ratio – Marginal: Break-even at best. You need a 55%+ win rate to profit. Not recommended.
Less than 1:1 – Avoid: Never take trades where risk exceeds reward. This is a losing strategy regardless of win rate.
Why Risk Reward Calculator Matters
Long-Term Profitability: Even with a 50% win rate, a 1:2 risk/reward ratio makes you profitable. Win 5 trades at +$200, lose 5 at -$100 = +$500 profit.
Protects Against Losing Streaks: Good risk reward ratios mean you can survive multiple losses and still profit overall.
Reduces Emotional Trading: Pre-calculating risk/reward helps you avoid impulsive trades with poor setups.
Professional Discipline: Consistent use of minimum ratios separates professional traders from gamblers.
Risk Reward and Win Rate
Understanding the relationship between risk reward ratio and required win rate:
1:3 Ratio:
- Need only 30% win rate to break even
- 40% win rate = significant profit
- Best for trend following strategies
1:2 Ratio:
- Need 40% win rate to break even
- 50% win rate = good profit
- Standard for most trading strategies
1:1 Ratio:
- Need 55% win rate to break even (accounting for spreads)
- 60% win rate = modest profit
- Difficult to maintain long-term
Less than 1:1:
- Need 60%+ win rate just to break even
- Very difficult to achieve consistently
- Avoid these setups
How to Improve Your Risk/Reward
Wider Profit Targets: Look for trades with strong potential for extended moves. Target major support/resistance levels, not arbitrary numbers.
Tighter Stop Losses: Place stops based on technical invalidation points, not arbitrary distances. Use support/resistance, trend lines, or moving averages.
Better Entry Timing: Enter on pullbacks rather than breakouts. Better entries mean smaller stops and larger potential rewards.
Avoid Low-Probability Setups: If you can’t find a 1:2 ratio, the trade setup probably isn’t strong enough. Wait for better opportunities.
Common Risk/Reward Mistakes
Taking Any Trade Available: Not every setup offers good risk/reward. Patience is key. Wait for 1:2+ ratios.
Arbitrary Profit Targets: Don’t pick round numbers. Base targets on technical levels where price is likely to react.
Moving Stop Loss After Entry: Pre-calculate risk/reward and stick to your plan. Moving stops invalidates your risk management.
Ignoring Spread/Commissions: Account for trading costs when calculating risk/reward. They reduce your actual ratio.
Focusing Only on Win Rate: A 70% win rate with 1:0.5 risk/reward loses money. Focus on ratio, not just wins.
Risk/Reward in Different Strategies
Trend Following (1:3 or better):
- Larger profit targets riding trends
- Wider stops to avoid whipsaws
- Lower win rate (40-50%) but profitable
Range Trading (1:1.5 to 1:2):
- Smaller moves between support/resistance
- Tighter stops
- Higher win rate needed (55-60%)
Breakout Trading (1:2 to 1:3):
- Good reward potential on confirmed breaks
- Stop below breakout level
- Moderate win rate (45-55%)
Scalping (1:1 to 1:1.5):
- Very tight stops and targets
- Requires high win rate (60%+)
- Not recommended for beginners
Using Risk/Reward with Position Sizing
After confirming good risk/reward:
- Calculate risk/reward ratio (minimum 1:2)
- Determine risk amount (1-2% of account)
- Calculate position size based on stop loss distance
- Enter trade with confidence
Calculate position size: Use our [Position Size Calculator]
Related Free Tools
Essential Forex Calculators:
- Position Size Calculator – Calculate lot size after confirming good R:R
- Pip Value Calculator – Understand pip values for your pairs
- Profit/Loss Calculator – Project exact dollar amounts
Educational Resources:
- Risk Management in Forex – Complete risk management guide
- How to Set Stop Loss and Take Profit – Placement strategies
- Forex Trading Tools & Resources – All free tools
Trade Evaluation Checklist
Before entering any trade:
- Risk/reward ratio is 1:2 or better
- Stop loss placed at technical invalidation point
- Take profit at logical resistance/support level
- Position size calculated (1-2% account risk)
- Trading plan documented
- Economic calendar checked for news events
Risk Warning
Note: Always evaluate risk/reward before entering trades. Trade only with brokers regulated by Major regulatory bodies include CFTC/NFA (USA), FCA (UK), ASIC (Australia), CySEC (EU), and FINMA (Switzerland). Always verify contract specifications directly with your regulated broker