Risk/Reward Calculator
Turn an entry, a stop and a target into the reward-to-risk ratio, the win rate you would need just to break even, and the expectancy per trade at the win rate you actually have.
By Joey van Diest, founder and editorUpdated
- Reward : risk
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- Breakeven win rate
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- Expectancy / trade
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- Edge vs breakeven
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The formulas
reward : risk = |target − entry| ÷ |entry − stop|
breakeven win rate = 1 ÷ (1 + reward:risk)
expectancy (R) = win% × reward:risk − (1 − win%)
The ratio is just the distance to your target divided by the distance to your stop. Entry 100, stop 98, target 104: you risk 2 to make 4, a 2:1 reward-to-risk. The breakeven win rate that ratio demands is 1 ÷ (1 + 2) = 33.3%. Win more often than that and the strategy is profitable before costs; win less often and it bleeds, no matter how good any single trade feels.
Expectancy ties it together with your real win rate. At a 45% win rate on that 2:1 setup, expectancy is 0.45 × 2 − 0.55 = +0.35R per trade: for every unit you risk, you net about a third of it on average over many trades. That positive number, not any single win, is the whole game. A setup with a beautiful ratio but a win rate below its breakeven has negative expectancy and loses money with mathematical certainty over time.
From one trade to a thousand
Knowing your expectancy is a per-trade number; what it does over a long run of trades, and how badly variance can bite along the way, is what therisk of ruin simulatorshows: the same edge sized too aggressively can still blow up before it pays off. Once you know the risk in price terms, the position size calculatorturns your stop distance into the exact lot size for a fixed percentage of account, and theprofit & loss calculatorshows what the target and stop are each worth in cash.
Frequently asked questions
- What reward-to-risk ratio should I aim for?
- There is no universal answer, because the ratio only means something next to your win rate. A 3:1 setup you win 25% of the time and a 1:1 setup you win 60% of the time have similar expectancy. The useful discipline is knowing the breakeven win rate your ratio implies and honestly asking whether your strategy clears it. A higher ratio buys you a lower required win rate, which is why many trend traders accept frequent small losses for occasional large wins.
- How is breakeven win rate calculated?
- Breakeven win rate = 1 / (1 + reward-to-risk). At 1:1 you need to win more than 50%; at 2:1, more than 33.3%; at 3:1, more than 25%. Below that win rate the strategy loses money over time; above it, it makes money, before costs. Spread and commission push the real breakeven a little higher, so leave a margin.
- What is expectancy?
- The average profit or loss per trade, measured in units of your risk (R). Expectancy = (win rate × reward) - (loss rate × 1). A positive number means a profitable edge over many trades; +0.3R means you net about 0.3 times your per-trade risk on average. Expectancy, not win rate, is what actually grows an account, a 40% win rate at 2:1 (expectancy +0.2R) beats a 60% win rate at 0.5:1 (expectancy -0.1R).
- Does a good ratio guarantee profit?
- No. The ratio is set by where you place your stop and target, but the market decides how often price reaches the target before the stop. A tempting 5:1 setup is worthless if price almost never travels that far in your favour first. Ratio and realistic win rate have to be judged together, which is exactly what expectancy does, and why this tool asks for both.
Method and limitations
Pure arithmetic on your inputs, computed in your browser; nothing is fetched and nothing you type leaves the page. The ratio and breakeven win rate are exact; expectancy depends on the win rate you enter, which is only as good as your honest trade record, and it excludes spread and commission, which raise the real breakeven slightly. This is an information tool, not trading advice.
This tool runs entirely in your browser. Nothing you enter is sent to us or stored.
For general information and education only. This is not financial advice and not a recommendation to buy or sell anything. Trading and investing carry risk, including the risk of losing more than your initial outlay. Always verify figures against your broker or the original source before acting on them.
Spotted an error? Email[email protected]and it will be corrected. Maintained byJoey van Diest.