What risk : reward means
R:R compares what a trade can lose with what it aims to make. A stop 40 pips away and a target 80 pips away is 1:2 — the trade risks one unit (1R) to make two.
R = (Target − Entry) ÷ (Entry − Stop) for a buy, mirrored for a sellThe win rate a ratio needs
A higher R:R does not make a trade better on its own — it lowers the win rate you need. The break-even win rate is 1 ÷ (1 + R), before costs:
| R:R | Break-even win rate |
|---|---|
| 1 : 0.5 | 66.7% |
| 1 : 1 | 50.0% |
| 1 : 1.5 | 40.0% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25.0% |
| 1 : 5 | 16.7% |
The average result per trade is win rate × R − loss rate. At 1:2 with a 40% win rate that is 0.4 × 2 − 0.6 = +0.2R: risking $40 a trade earns about $8 per trade on average over many trades.
Break-even win rate, explained → R-multiple → Expectancy →
Questions
What is a good risk reward ratio?
There is no single good ratio — it has to match how often the setup wins. 1:2 needs to win more than 33% of the time; 1:1 needs more than 50%. Targets far beyond where the chart can realistically reach raise the ratio on paper but lower the win rate.
What does 1R mean?
1R is the amount you lose if the stop is hit. Measuring results in R instead of dollars makes trades of different sizes comparable: a +2R trade made twice what it risked, whatever the lot size.
Does R:R change if I take partial profits?
Yes. Closing part of the position at an earlier target lowers the average reward per trade, and usually raises the win rate. Work out the R:R of each level separately, then weight it by the share of the position closed there.
For education only. Break-even win rates exclude spread, commission and slippage; they are not trading advice.