Risk/reward ratio calculator
Enter the entry, stop-loss and target prices of a long or short trade. The calculator compares the distance to the target with the distance to the stop, and shows how often the target would have to be reached to break even.
Risk/reward
1:2.00
The target is 2.00 times as far from entry as the stop.
- Risk (entry to stop)
- 25 pips (0.0025)
- Reward (entry to target)
- 50 pips (0.0050)
- Break-even hit rate, before costs
- 33.3%
Example values are filled in; replace them with your own. Results are estimates in US dollars and leave out spread, commission and swap.
How the calculation works
The risk/reward ratio compares what a trade stands to gain at its target with what it stands to lose at its stop, both measured from the entry price. A long trade with the stop 25 pips below the entry and the target 50 pips above has a ratio of 1:2: the target is twice as far away as the stop.
The ratio alone does not say whether a trade is worth taking. A distant target is reached less often than a near one, so a higher ratio usually comes with fewer trades that get there. What matters is the combination of the ratio and how often the target is reached, after spread and commission.
The break-even hit rate shows that combination for a single ratio. A trade that pays R times its risk breaks even, before costs, when it reaches its target on 1 ÷ (1 + R) of attempts: half the time at 1:1, a third of the time at 1:2, a quarter of the time at 1:3. Costs push each of those thresholds higher.
The formula
Risk = |Entry − Stop|
Reward = |Target − Entry|
Risk/reward = 1 : (Reward ÷ Risk)
Break-even hit rate = 1 ÷ (1 + Reward ÷ Risk)
- Entry, stop, target
- Prices. For a long trade the stop sits below the entry and the target above it; for a short trade, the reverse.
- Pips
- A price distance divided by the pip size: 0.0001, or 0.01 when the quote currency is the yen.
- Break-even hit rate
- The share of trades that must reach the target, rather than the stop, for the total to come out flat before costs.
Worked example
A long EUR/USD trade entered at 1.0850, with the stop at 1.0825 and the target at 1.0900.
- Risk
- 1.0850 − 1.0825 = 0.0025 (25 pips)
- Reward
- 1.0900 − 1.0850 = 0.0050 (50 pips)
- Reward ÷ risk
- 50 ÷ 25 = 2.00
- Break-even hit rate
- 1 ÷ (1 + 2.00) = 33.3%
The trade has a risk/reward of 1:2.00. Before costs, it would need to reach its target on more than 33.3% of attempts to come out ahead.
Illustrative numbers, not live quotes.
Frequently asked questions
What is a good risk/reward ratio?
No ratio is good on its own. A higher ratio pays more on each trade that reaches its target, but a distant target is reached less often. Judge the ratio together with how often your trades reach their targets, after costs.
How often must a 1:2 trade reach its target to break even?
One time in three, before costs: the break-even share is 1 ÷ (1 + R), which is 33.3% at 1:2. To come out ahead it has to do better than that, and spread and commission raise the threshold.
Does the calculator check that my levels are on the right side?
Yes. For a long trade the stop must be below the entry and the target above it; for a short trade it is the other way round. A level on the wrong side is flagged instead of being counted.
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- Profit and loss calculatorThe result of a long or short trade in pips and US dollars, from entry, exit and lot size.Formula and worked example
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An educational tool, not investment advice. Markitel is not a broker or custodian and does not offer real-money trading. Contract sizes, pip definitions and lot steps differ between brokers; check every figure against your broker's contract specifications before you trade.
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