# Risk Reward Ratio Calculator

Use our risk reward ratio calculator to calculate your risk in forex, crypto, stocks, or spread betting. Knowing your risk to reward is a critical concept for day traders in order to create effective strategies.

The risk-to-reward calculator measures the risk for every dollar spent based on your entry price, stop loss price, and your take profit price.

To use the risk reward calculator, follow these steps:

- Input your entry price (eg. $125, or $25,000)
- Add your stop loss price.
- Finally, insert your take profit price.
- Click Calculate!

## Risk Reward Calculator

Risk Reward Ratio: 1:0

Information: A risk reward ratio of 1:5 means that your profit is 5 times bigger than your loss. A higher risk reward ratio is always better!

## What is a risk reward ratio calculator?

A risk reward calculator or a win loss calculator is a tool that forex, stock, and crypto traders use to calculate the overall payoff for a given trade relative to the amount risked.

It measures if a trade is justified seen from a risk point of view and whether the potential reward is worth the total risk.

When calculating the risk to reward, you want to see a number that is equal to or greater than 2. A risk reward win ratio of 1:2 is the lowest amount of profit you want to aim for in comparison to risk.

### Formula used when we calculating risk to reward

When we are calculating risk reward in forex, stocks, crypto, or spread betting, this formula is used:

‘Risk Reward Ratio = (Take Profit Price – Entry Price) / (Entry Price – Stop Loss Price)’

### Why risk reward ratio matters to traders?

Using a risk reward win ratio calculator to understand your overall risk is beneficial for traders because:

- It helps traders make more informed decisions and it gives them the control to choose between taking a trade or waiting for a better opportunity seen from a risk profile.
- It helps you manage risk much better. If you calculate your risk reward and realize that it is less than 1:2, you will probably want to skip that and save the risk for a better trade.
- It improves profitability. Knowing your total reward in comparison to your risk can tell you how profitable your trade will be. It cannot tell you the chance of winning but it can tell you how much you will win if the trade is a winner.

### Risk reward ratio example

Let’s say that you are trading stocks with leverage and you want to enter a stock at $50, your stop loss price is at $48, and your take profit is at $58.

In this scenario, our potential profit is $8, and the potential loss is $2. To calculate the win loss ratio you need to divide the profit by the loss.

If we use our calculator for risk to reward above, it will give us a risk reward ratio of 4.

Knowing this, we can enter the trade with a positive expectancy as long as we have a good leverage trading strategy.

Keep in mind that a ratio of 2 lets you have a win ratio of 50% and still break even. If you have a ratio of 3 you can afford to lose 66% of the time and still break even.

### Additional tips we find helpful

- The risk reward ratio calculator is not to be used on its own. Always make sure to have a solid trading plan and a strategy that you know has the potential to win. Combine this with a good risk reward ratio and you will excel in your trading.
- The stop loss is exceptionally important when calculating the win to loss ratio. If you can’t define your risk, your setups become random and so will your trading results.
- Don’t change the inputs after entering a trade. Once you have chosen the entry price, stop loss price, and take profit price you need to see your trade through until it is closed. Changing the parameters will influence the results in a negative way since your calculations will not be correct and in the long run, your results will suffer.

### FAQ

**What factors are important to consider when calculating the risk-to-reward ratio?**

You want to make sure that your inputs match the true prices for your trade. This means that if you add an entry price of $250 to the calculator you need to stick to that entry price and enter at that price. The same thing goes for the stop loss and the take profit.

**How often should I re-calculate my risk-to-reward ratio?**

Only reassess your risk reward ratio if your trade plan or setup has changed. If your plan stays the same, stick with the same calculations.

**What are some of the most common mistakes when calculating the risk/reward ratio?**

Most beginners tend to have very poor risk profiles and they tend to settle with a risk-reward ratio of 1.2 or 1.5 which is not a good ratio. Try to aim for a better ratio of at least 2 or more.

**How can I determine a good risk-reward ratio?**

Typically, a win-loss ratio of more than 2 is always good since it lets you have a win rate of only 50% to break even.