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Risk & Money

Risk-Reward Ratio

The risk-reward ratio compares how much a trade can make with how much it can lose, from the distances to the target and the stop.

Also known as: risk/reward, reward to risk, R:R

If a trade risks 5% to make 15%, its reward-to-risk ratio is 3 to 1. The ratio tells you how often the trade must win to break even: 1 ÷ (1 + ratio), so 25% at 3 to 1 and 50% at 1 to 1. Fees and slippage raise that bar slightly.

A high ratio is not automatically good, because a more distant target is reached less often. What counts is the ratio together with the win rate. Try your own numbers in the risk reward calculator.

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