Risk-Reward Ratio
Why a 1:2 minimum RR changes everything
4 sections · 3 quiz questions · ~5 min read
Guided course path
Keep risk-reward ratio inside the live track.
You are reading a reference lesson. The live course path gives you the lesson order, checks, saved progress, and next step. This live track contains the deeper risk-math and psychology sequence.
Closest track: Options, Risk Math, and PsychologyFirst lesson: What a call option grants you
What Is Risk-Reward?
Risk-Reward Ratio (RR) compares your potential loss to your potential profit. A 1:2 RR means you risk 30 pips to potentially gain 60 pips. With a 1:2 RR, you only need to win 34% of trades to break even.
The Power of 1:2+
With 1:2 RR and 50% win rate: 5 wins × $200 = $1,000, 5 losses × $100 = $500. Net profit = $500 from 10 trades. Good RR means you can be wrong more often than right and still be profitable.
Calculating RR Before Entry
Before entering any trade: identify your stop loss (risk) and take profit (reward). Divide reward by risk. If it's less than 1:1.5, skip the trade. Professional traders typically aim for 1:2 or higher.
RR + Win Rate = Expectancy
Your trading expectancy = (Win% × Avg Win) - (Loss% × Avg Loss). A system with 40% wins and 1:3 RR is more profitable than 70% wins with 1:0.5 RR. Focus on RR quality, not just win rate.
Quick check
Did it stick?
Try to answer each one before you peek at the explanation.
1
With a 1:2 risk-reward ratio, how many pips do you target if your stop is 25 pips?
2
With a 1:3 risk-reward ratio, you need to win at least 50% of trades to be profitable.
3
You risk $100 per trade. After 10 trades (6 losses, 4 wins at 1:2 RR), what's your net P&L?