Risk-Reward Ratio Calculator

Risk-reward ratio to breakeven win rate

Every ratio implies a minimum win rate you must beat to avoid losing money over a long run of trades. That figure is the breakeven win rate, and it follows a clean formula:

breakeven win rate = 1 / (1 + R) where R is the reward-to-risk multiple.

The higher your reward relative to risk, the fewer trades you need to win to stay above water. The table below shows the breakeven win rate for the ratios traders use most often.

Read these numbers as the floor, not the goal. A 2:1 strategy that wins exactly 33% of the time merely breaks even before costs; once spread and commissions are subtracted it loses. You need to clear the breakeven figure with margin to be genuinely profitable.

What is a good risk-reward ratio?

The honest answer is that no ratio is good or bad on its own, because the ratio only describes one half of the equation. A high-ratio approach such as 4:1 lets you be wrong most of the time and still profit, but those trades often need wide targets that the market reaches less frequently, so the win rate sinks. A low-ratio approach such as 1:1 demands a high hit rate but the targets are close and filled more often.

The metric that actually decides whether a strategy makes money is expected value, which combines the ratio with the win rate:

EV = (win rate × reward) − (loss rate × risk)

A trend-following trader winning 30% of the time at 4:1 and a scalper winning 65% of the time at 1:1 can both be profitable, while a sloppy 2:1 system that only wins 30% of the time loses money. Pick the ratio that fits how your strategy actually behaves, then confirm the win rate supports it.

Worked example (forex)

Suppose you go long EUR/USD at an entry of 1.0850. You place your stop-loss at 1.0820, just below a recent swing low, and set your take-profit at 1.0940 near the next resistance band.

• Risk per unit: 1.0850 − 1.0820 = 0.0030 (30 pips)
• Reward per unit: 1.0940 − 1.0850 = 0.0090 (90 pips)
• Risk-reward ratio: 0.0090 / 0.0030 = 3.0, a 3:1 setup

Plugging R = 3 into the breakeven formula gives 1 / (1 + 3) = 0.25, so you only need to win 25% of trades like this to break even. If your backtest shows this pattern wins closer to 40% of the time, the edge is meaningful.

One caution: if the pair carries a 1.5-pip spread, your real risk is closer to 31.5 pips and your real reward closer to 88.5 pips, nudging the live ratio to about 2.8:1. Always measure the ratio against the prices you will actually be filled at.

Common mistakes

• Moving the stop closer just to flatter the ratio. A tighter stop inflates the number on paper but pushes the exit inside normal market noise, so you get stopped out before the idea has a chance to work. Place the stop where the trade is invalidated, then read the ratio from there.
• Ignoring spread, commission, and slippage. These costs widen your effective risk and shrink your effective reward, and on small targets they can quietly turn a 2:1 plan into something far worse. Bake them into the levels before you calculate.
• Cherry-picking an optimistic target. Choosing a take-profit that the price rarely reaches produces a beautiful ratio and a terrible win rate. Set targets at levels the market actually trades to, such as prior structure or measured moves.
• Treating the ratio as a strategy by itself. Without a tracked win rate and expected value, a ratio is just a hope. Log every trade so you can compare your planned ratio with your realized results.