🛡️ Risk & Money·beginner

Risk-Reward Ratio

Also called: rr, r:r, risk to reward

The ratio between how much you risk on a trade and how much you stand to make — the math that makes trading profitable.

Risk-reward ratio is simply: potential profit ÷ potential loss. If you risk 20 pips and target 60 pips, that's a 1:3 risk-reward. Pros aim for at least 1:2 on every trade — risk $1 to make $2. The beautiful thing about risk-reward is that it changes what your win rate needs to be to be profitable. At 1:1, you need to win over 50% of trades. At 1:2, you only need 35%. At 1:3, you only need 28%. Meaning you can be WRONG more than half the time and still grow your account. Most losing traders obsess over win rate. Pros obsess over R-multiples. They'd rather take a trade they're 40% confident in at 1:3 than a trade they're 60% confident in at 1:1. The math wins every time.

Real trade example

A trader with a 40% win rate and 1:3 average R:R grew a $5,000 account to $15,000 in six months in 2024. Another trader with a 70% win rate but 1:1 R:R lost money over the same period. Math, not magic.

Related terms

Stop Loss

beginner

An order that automatically closes your trade at a predetermined loss level — your first line of survival.

Take Profit

beginner

An order that automatically closes your winning trade at a predetermined profit level — your exit plan in advance.

Win Rate

beginner

The percentage of your trades that close profitably — one half of the equation that determines profitability.

Expectancy

advanced

The average dollar (or R) amount you can expect to make per trade over many trades — the math behind whether a strategy works.

Position Sizing

beginner

The math that tells you how many lots to trade based on your account, stop distance, and risk tolerance.

Max Drawdown

intermediate

The largest peak-to-trough decline in account equity over a measured period — the worst losing streak you've ever had.

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