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Costs & risk

Risk-reward ratio

The risk-reward ratio compares the possible loss of a trade, up to its stop loss, with the possible gain, up to its take profit. It describes a trade plan; it says nothing about how likely either outcome is.

Also called: risk/reward, R:R, reward-to-risk ratio, risk to reward

Hypothetical example

Hypothetically, a trade has a stop loss 30 pips away and a take profit 60 pips away: a risk-reward ratio of 1:2. The price may still reach the stop loss first.

Used in these guides

Costs & risk8 min read
Position sizing: how to work out how many lots to trade
A step-by-step method for setting the size of a trade from the amount you are prepared to lose, your stop loss and pip value.
Costs & risk8 min read
Stop loss and take profit
How stop loss and take profit orders close a position automatically, how to read the distance in pips and money, and their limits.

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