# Risk/Reward Calculator

> Free risk reward calculator. Enter entry, stop and target prices to get the reward to risk ratio and the win rate you need to break even.

Source: https://learn.tradelabsai.com/tools/risk-reward-calculator/  
Track: Calculators · Level: Beginner · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Risk/Reward Calculator", https://learn.tradelabsai.com/tools/risk-reward-calculator/

Before taking a trade, it helps to know how much you stand to make compared with how much you could lose. The reward to risk ratio compares the distance from your entry to your profit target with the distance from your entry to your stop loss. A ratio of 2 to 1 means the potential gain is twice the potential loss. Just as important, the ratio tells you the minimum win rate needed to break even: the better the ratio, the less often you need to be right. This calculator works for long and short trades in any market.

## Calculator

*Interactive calculator: use it at https://learn.tradelabsai.com/tools/risk-reward-calculator/*

## How it works

```
Risk = |Entry - Stop|
Reward = |Target - Entry|
Reward to risk = Reward / Risk
Break even win rate = 1 / (1 + Reward to risk)
```

The break even win rate ignores costs. Commissions, spreads and slippage raise it, so the real threshold is a little higher. See [Risk/Reward Ratio](https://learn.tradelabsai.com/risk/risk-reward-ratio/) and [Win Rate and Payoff Ratio](https://learn.tradelabsai.com/portfolio/win-rate-and-payoff-ratio/).

**Example: A long trade with a 2.5 to 1 ratio**
A trader buys at $100 with a stop at $95 and a target at $112.50. Risk is $5 per share and reward is $12.50, a ratio of 2.5 to 1. The break even win rate is 1 divided by 3.5, about 28.6%. If the trader's setups historically reach the target 40% of the time and hit the stop the rest, expectancy is 0.40 times $12.50 minus 0.60 times $5, which is $5 minus $3, or $2 per share per trade before costs. If they win only 25% of the time, expectancy turns negative. See [Expectancy](https://learn.tradelabsai.com/risk/expectancy/).

## Ratio and win rate table

| Reward to risk | Break even win rate |
|---|---|
| 0.5 : 1 | 66.7% |
| 1 : 1 | 50.0% |
| 1.5 : 1 | 40.0% |
| 2 : 1 | 33.3% |
| 3 : 1 | 25.0% |
| 4 : 1 | 20.0% |

## Why a high ratio is not enough

A distant target produces an attractive ratio on paper but may rarely be reached. What matters is the combination of ratio and the realistic probability of hitting the target before the stop. Choose targets from market structure, such as prior highs, support and resistance or measured moves, not from a desired ratio. See [Profit Targets](https://learn.tradelabsai.com/position-management/profit-targets/) and [Support and Resistance](https://learn.tradelabsai.com/price-action/support-and-resistance/).

| Trade | Ratio | Realistic hit rate | Expectancy per $1 risked |
|---|---|---|---|
| Near target | 1 : 1 | 58% | +$0.16 |
| Middle target | 2 : 1 | 38% | +$0.14 |
| Far target | 5 : 1 | 12% | minus $0.28 |

The middle and near targets both work; the far target, despite its impressive ratio, loses money.

## Common mistakes

1. **Moving the stop further away** to make a trade fit, which raises real risk.
2. **Picking targets to hit a ratio** rather than from the chart.
3. **Ignoring costs,** which matter most on small targets. See [Transaction Costs](https://learn.tradelabsai.com/orders/transaction-costs/).
4. **Not tracking actual results:** measure your real win rate and average reward to risk in a journal. See [Trading Journal](https://learn.tradelabsai.com/start-here/trading-journal/).
5. **Forgetting partial exits,** which change the effective ratio. See [Scaling Out and Partial Profits](https://learn.tradelabsai.com/position-management/scaling-out-and-partial-profits/).

## Pairing with position size

The ratio tells you whether a trade is worth taking; the [Position Size Calculator](https://learn.tradelabsai.com/tools/position-size-calculator/) tells you how big it should be. Use both before every trade, and feed your journal results into the [Expectancy and Profit Factor Calculator](https://learn.tradelabsai.com/tools/expectancy-calculator/) to see whether your system has an edge.

## Frequently asked questions

### What is a good risk reward ratio?

Many traders look for at least 1.5 or 2 to 1, but the right ratio depends on how often your setups reach their targets.

### How do I calculate risk reward?

Divide the distance from entry to target by the distance from entry to stop loss.

### What win rate do I need with a 2 to 1 ratio?

About 33.3% to break even before costs, since one divided by three is one third.

Next, convert forex pips into money with the [Pip Value Calculator](https://learn.tradelabsai.com/tools/pip-value-calculator/).

## Continue learning

- Next lesson: [Pip Value Calculator](https://learn.tradelabsai.com/tools/pip-value-calculator/)
- Previous lesson: [Position Size Calculator](https://learn.tradelabsai.com/tools/position-size-calculator/)
- Related: [Position Size Calculator](https://learn.tradelabsai.com/tools/position-size-calculator/): Free position size calculator. Enter your account size, risk percentage, entry and stop to see how many shares, contracts or coins to trade.
- Related: [Risk/Reward Ratio](https://learn.tradelabsai.com/risk/risk-reward-ratio/): The risk/reward ratio compares a trade's potential loss with its potential gain. Learn the formula, how it links to win rate, break even maths and common traps.
- Related: [Win Rate and Payoff Ratio](https://learn.tradelabsai.com/portfolio/win-rate-and-payoff-ratio/): Win rate and payoff ratio together decide whether a strategy makes money. Learn how to calculate both, the breakeven formula and why high win rates can mislead.
- Related: [Expectancy and Profit Factor Calculator](https://learn.tradelabsai.com/tools/expectancy-calculator/): Free trading expectancy calculator. Enter win rate, average win and average loss to see expectancy per trade, profit factor and break even win rate.
- Related: [Profit Targets](https://learn.tradelabsai.com/position-management/profit-targets/): Good profit targets come from market structure, not wishes. Learn target methods using levels, measured moves, ATR and R multiples, and how to manage them.