Formula
Risk/Reward ratio = potential reward / total risk
RiskR
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Risk/Reward Ratio
Risk/reward ratio compares potential upside to downside before entering a trade.
Worked example
Entry: 100, stop: 96, target: 112.
Risk per share is 4 and reward per share is 12.
Risk/reward is 12 / 4 = 3.0, which is a 3R setup before fees.
FAQ
Is a higher risk/reward ratio always better?
No. Setup quality, execution, and hit rate still matter. Risk/reward is one part of planning.
Should fees be included in risk/reward?
Yes. Use net risk and net reward when possible so the ratio reflects realistic outcomes.
Apply this in the calculator
Use this concept in a synthetic setup, then validate risk, reward, and R-multiple before placing a trade.
Open calculatorEducational content only. Not financial advice.