Risk/Reward Ratio Calculator

How to calculate the risk/reward ratio

The ratio compares what you stand to make at your target with what you stand to lose at your stop. Commissions count against both sides, because a losing trade pays them too and a winner gives them back.

The figure to act on is the break-even win rate. A 3-to-1 setup needs winners only 25% of the time, while a 1-to-1 setup needs 50%. If your trade records show a win rate above that number on similar setups, the math is on your side.

Reward ÷ risk = (|target − entry| × shares − fees) ÷ (|entry − stop| × shares + fees). Break-even win rate = risk ÷ (risk + reward).

Worked example

You buy 100 shares at $250 with a stop at $245 and a target at $265. You risk $500 to make $1,500, which is 3 to 1, and you need to win 25% of the time to break even.

Add a $5 commission on each order. The loss becomes $510 and the profit becomes $1,490, so the break-even win rate rises to 25.5%. Costs matter far more on tight scalps than on this example.

What the result does not account for

• How likely the target is. A distant target improves the ratio and lowers the chance of reaching it.
• Slippage at the stop, which often makes the actual loss larger than planned.
• Taxes and the interest or borrow fees on margin and short positions.

Frequently asked questions