Risk Reward Calculator
Calculate the risk-reward ratio, potential profit and loss, and the minimum win rate needed for any trade setup across all markets.
What Is Risk Reward Ratio in Trading?
The risk-reward ratio (R:R) is a measure that compares the potential loss on a trade (risk) to the potential profit (reward). It is calculated by dividing the distance from your entry to your stop-loss by the distance from your entry to your take-profit. A 1:2 risk-reward ratio means you are risking $1 to potentially make $2.
Risk-reward ratio is one of the most important concepts in trading because it determines the minimum win rate you need to be profitable. A trader with a 1:3 R:R only needs to win 25% of trades to break even. A trader with a 1:1 R:R needs to win over 50%.
Reward = |Take Profit − Entry Price|
R:R Ratio = 1 : (Reward / Risk)
Break-Even Win Rate = 1 / (1 + Reward/Risk)
Risk Reward Ratio and Win Rate Relationship
The relationship between R:R ratio and required win rate is the foundation of profitable trading. The table below shows the break-even win rate for common risk-reward ratios:
| R:R Ratio | Break-Even Win Rate | Risk per $100 | Reward per $100 | Assessment |
|---|---|---|---|---|
| 1 : 0.5 | 66.7% | $100 | $50 | Poor — need very high accuracy |
| 1 : 1 | 50.0% | $100 | $100 | Neutral — coin flip |
| 1 : 1.5 | 40.0% | $100 | $150 | Acceptable for most strategies |
| 1 : 2 | 33.3% | $100 | $200 | Good — professional standard |
| 1 : 3 | 25.0% | $100 | $300 | Excellent — allows low win rate |
| 1 : 5 | 16.7% | $100 | $500 | Exceptional — rare setups |
This table explains why professional traders obsess over R:R. A trader who consistently takes 1:2 setups only needs a 34% win rate to be profitable. Even after accounting for commissions and slippage, a 40% win rate at 1:2 produces strong returns over hundreds of trades. Vector Ridge's audited track record — including a 2.57 Sharpe ratio in 2023 and 2.10 in 2025 — is built on this principle.
Worked Examples
Entry: 1.0850 | Stop Loss: 1.0820 | Take Profit: 1.0910
Risk = 1.0850 − 1.0820 = 30 pips. Reward = 1.0910 − 1.0850 = 60 pips.
R:R = 1 : 2.0. Break-even win rate = 33.3%. Assessment: Good trade setup.
Entry: 150.80 | Stop Loss: 151.30 | Take Profit: 149.30
Risk = 151.30 − 150.80 = 50 pips. Reward = 150.80 − 149.30 = 150 pips.
R:R = 1 : 3.0. Break-even win rate = 25%. Assessment: Excellent setup.
Entry: $135.00 | Stop Loss: $131.00 | Take Profit: $147.00
Risk = $4.00 per share. Reward = $12.00 per share.
R:R = 1 : 3.0. Break-even win rate = 25%. Assessment: Excellent setup.
Common Risk Reward Mistakes
- Setting take-profit too close to entry — results in a poor R:R (below 1:1) where you need very high win rates to profit
- Widening stop-loss to avoid being stopped out — destroys R:R because risk increases while reward stays the same
- Ignoring the break-even win rate — taking 1:0.5 setups without realising you need 67% accuracy to break even
- Using the same R:R for every trade — different market conditions call for different approaches. High-conviction setups may justify tighter R:R; uncertain setups need wider R:R.
- Not accounting for fees and slippage — a 1:1 trade that is technically break-even at 50% win rate becomes unprofitable after commissions
How Vector Ridge Signals Use Risk Reward
Every Vector Ridge signal includes a defined entry, stop-loss, and take-profit — meaning the R:R is built into every signal. The Grade A–E conviction system further refines this: Grade A signals typically have the most favourable R:R setups, while Grade D signals may have asymmetric R:R but lower probability.
This approach produced a 2.10 Sharpe ratio in 2025 with only 12% maximum drawdown — evidence that consistent R:R discipline, combined with macro-driven conviction grading, generates strong risk-adjusted returns.
Related Tools
- Position Size Calculator — calculate optimal lot size from R:R and account risk
- Pip Calculator — convert pip distances to dollar values
- Drawdown Calculator — understand recovery math after losing streaks
- Win Rate vs Risk Reward Explained — in-depth guide
- Forex Signals — verified signals with built-in R:R from $29.99/month
The ratio of potential loss (risk) to potential profit (reward) on a trade. A 1:2 R:R means you risk $1 to potentially make $2. Calculated as (Entry - Stop Loss) / (Take Profit - Entry) for longs.
Most professionals aim for minimum 1:2. At 1:2, you only need to win 34% of trades to break even. Higher R:R (1:3, 1:5) is better but rarer.
Break-even win rate = 1 / (1 + R:R). At 1:1 = 50%. At 1:2 = 33.3%. At 1:3 = 25%. Use the calculator above to find the exact figure for your setup.
Risk = distance from entry to stop-loss. Reward = distance from entry to take-profit. R:R = 1 : (Reward / Risk). Enter your prices in the calculator above for instant results.
A minimum R:R floor (e.g., never below 1:1.5) is good practice, but optimal R:R varies by setup. Scalping may use 1:1 with high win rates. Swing trades aim for 1:2+. Vector Ridge's conviction grades help calibrate expectations.