JustChartsRisk–Reward Ratio Explained: What Is a Good Ratio in Trading?
The risk–reward ratio compares the distance to your stop-loss with the distance to your take-profit. Risking 20 pips to make 40 pips is 1:2. The higher the reward relative to risk, the lower the win rate you need to break even: at 1:2 you break even winning one trade in three (33.3%).
Key facts
- Formula
- reward ÷ risk (in pips or money)
- Break-even win rate
- risk ÷ (risk + reward)
- 1:1
- need 50% wins to break even
- 1:2
- need 33.3% wins
- 1:3
- need 25% wins
How to calculate risk–reward
Example: buy EUR/USD at 1.1000, stop-loss at 1.0980 (20 pips risk), take-profit at 1.1040 (40 pips reward). Risk–reward = 20 : 40 = 1:2.
Break-even win rate for common ratios
| Risk : reward | Win rate needed to break even (before costs) |
|---|---|
| 1 : 0.5 | 66.7% |
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25% |
Break-even win rate = risk ÷ (risk + reward)
Spreads, commissions and swaps raise the real break-even rate, so leave some margin.
Is a higher ratio always better?
No. A 1:5 target is reached far less often than a 1:1 target. What matters is expectancy — win rate × average win − loss rate × average loss. A strategy winning 60% of trades at 1:1 is profitable; one winning 15% at 1:3 is not.
Set targets from the chart, not from a ratio
Place the stop where your trade idea is proven wrong and the target before the next major support or resistance. If the resulting ratio is poor, skip the trade rather than moving the stop closer. Then size the position so the stop costs a fixed share of your account — see position sizing.
Frequently asked questions
What is a good risk-reward ratio?
Many traders aim for at least 1:1.5 to 1:2, but a good ratio is one that, combined with your actual win rate, gives a positive expectancy after costs.
What does 1:3 risk-reward mean?
You risk one unit to make three — for example a 20-pip stop and a 60-pip target. You break even if one in four trades wins.
How do you calculate risk-reward?
Divide the distance from entry to take-profit by the distance from entry to stop-loss. 40 pips ÷ 20 pips = 2, so the ratio is 1:2.
Put it into practice
Live charts, an economic calendar and trading calculators — free with a JustCharts account.
Size the trade with the position calculatorThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.