The risk reward ratio compares what you risk to what you aim to gain on a trade. Risk 20 pips to make 40 and your ratio is 1 to 2. On its own, though, the ratio tells you nothing. It only means something alongside your win rate. That pairing is the heart of whether a strategy actually makes money, and it is where a lot of trading advice goes wrong by quoting a ratio in isolation.
How to calculate it
Divide your potential reward by your potential risk. Reward is entry to target, risk is entry to stop.
- Entry: 1.1000
- Stop: 1.0980, so 20 pips of risk
- Target: 1.1040, so 40 pips of reward
- Ratio: 40 / 20 = 1 to 2
Your stop and target placement set the ratio, and your position size then sets how much money each side is worth.
Why win rate is the missing half
A ratio is only profitable above a certain win rate, and the breakeven win rate is:
Breakeven win rate = 1 / (1 + reward/risk)
| Risk reward | Breakeven win rate |
|---|---|
| 1 to 1 | 50% |
| 1 to 2 | about 33% |
| 1 to 3 | about 25% |
So a 1 to 3 strategy can lose three out of four trades and still break even. This is why a high risk reward is powerful: it lets you be wrong often and still profit, as long as you let the winners actually reach target.
The catch: the ratio is only real if you hold it
A 1 to 2 trade on paper becomes a 1 to 0.7 trade if fear makes you take profit early, and a 1 to minus-something trade if greed makes you move the stop. The planned ratio only counts if you let the trade play out as designed. That is a discipline problem, not a math problem, and it ties directly to fear and greed. Keeping your trading day controlled, so you are not managing trades from a tilted state, is what protects the ratio you planned. EmotionLock supports that by capping your day on MT5.
Frequently asked questions
What is the risk reward ratio?
The risk reward ratio compares how much you stand to lose on a trade to how much you stand to gain. If you risk 20 pips to make 40, your risk reward is 1 to 2. It tells you how much reward you are getting for each unit of risk, and it is set by where you place your stop and target.
How do I calculate risk reward ratio?
Divide your potential reward by your potential risk. Reward is the distance from entry to target, risk is the distance from entry to stop. Entry at 1.1000, stop at 1.0980 (20 pips risk), target at 1.1040 (40 pips reward) gives a ratio of 40 to 20, or 1 to 2.
What is a good risk reward ratio?
Many traders aim for at least 1 to 2, but no ratio is good in isolation. It only matters alongside your win rate. A 1 to 1 ratio is profitable above a 50 percent win rate, while a 1 to 3 ratio is profitable at just over 25 percent. The right target is the one your strategy can actually hit consistently.
How does win rate interact with risk reward?
They work together to decide profitability. Your breakeven win rate is 1 divided by (1 + reward/risk). At 1 to 2, breakeven is about 33 percent, so anything above that is profitable over a sample. A high risk reward lets you be profitable while losing most of your trades, provided you actually let winners reach target.
The summary
The risk reward ratio is reward divided by risk, and it only means something paired with your win rate through the breakeven formula. A high ratio lets you lose most trades and still profit, but only if you hold the trade as planned rather than letting fear or greed reshape it. Discipline, supported by tools like EmotionLock, is what keeps the real ratio matching the planned one.