What is risk/reward?
The risk/reward (RR) ratio compares a trade's potential risk with its potential profit.
How do you calculate risk/reward?
The formula is simple:
Risk/reward = Potential profit / Potential loss
For example, if you risk €100 for a potential €300 profit, your RR is 3, or 1:3.
What is risk/reward used for?
Risk/reward helps you:
- Quickly assess whether a trade is worth taking
- Compare trading opportunities
- Improve your risk management
The higher your RR, the more attractive the trade may be. An RR of 1:3 means you earn three times what you risk.
What risk/reward should you aim for?
A good RR is generally considered to be at least 1:2. But it depends on your strategy and win rate, the percentage of trades you win:
