"Only take 1:3 trades" is one of the most repeated pieces of trading advice online. It is half right. A good risk-to-reward ratio is not one magic number — it is a ratio that makes sense alongside how often your strategy actually wins. This guide explains how to calculate the risk-reward ratio, what counts as "good", and the maths most beginners never see.
What is the risk-to-reward ratio?
The risk-to-reward ratio (often written R:R or "RR") compares how much you stand to lose on a trade with how much you stand to gain.
- Risk = distance from entry to stop loss.
- Reward = distance from entry to profit target.
If you risk 20 pips to make 40 pips, the ratio is 1:2 — for every unit risked, you aim to make two.
Many traders describe results in R, where 1R is the amount risked. A trade that hits a 1:2 target is "+2R"; a stopped-out trade is "−1R". Thinking in R lets you compare trades regardless of position size or account balance.
How to calculate it (worked example)
You plan to buy GBP/USD:
- Entry: 1.2650
- Stop loss: 1.2620 — 30 pips of risk
- Target: 1.2740 — 90 pips of reward
90 ÷ 30 = 3, so the ratio is 1:3.
Important: the stop must come first, set at the level that proves the trade wrong (see where to put a stop loss). The target must be somewhere price can realistically reach — usually the next significant level. You do not get to stretch the target to make the ratio look good.
The break-even win rate: the number that actually matters
Every ratio comes with a minimum win rate below which you lose money over time (before costs). The formula is:
Break-even win rate = 1 ÷ (1 + reward-to-risk)
| Risk:Reward | Break-even win rate |
|---|---|
| 1:0.5 | 66.7% |
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33.3% |
| 1:3 | 25% |
These are pure arithmetic, not performance figures. They tell you that a 1:3 strategy only needs to win slightly more than one trade in four to break even — and that a 1:1 strategy needs to win more than half.
So what is a good risk-to-reward ratio?
A good ratio is one where your realistic win rate sits comfortably above the break-even line, after costs.
That is why "always take 1:3" is incomplete:
- Pushing the target further away raises the ratio but usually lowers how often price gets there.
- A strategy that wins often with modest targets can be perfectly sound at 1:1.5.
- A strategy with distant targets can be sound at a lower win rate — but only if it is genuinely reaching those targets often enough.
You only find out your real win rate by recording a meaningful number of trades, on demo first. Our guide on how long to demo trade before going live covers how to collect that evidence.
Expectancy: combining win rate and ratio
Expectancy is the average amount you can expect to make (or lose) per trade, in R:
Expectancy = (Win rate × average win in R) − (Loss rate × average loss in R)
Hypothetical illustration only — suppose a strategy wins 40% of the time at 1:2:
(0.40 × 2) − (0.60 × 1) = 0.80 − 0.60 = +0.2R per trade before costs.
Now the same 40% win rate at 1:1:
(0.40 × 1) − (0.60 × 1) = −0.2R per trade.
Same hit rate, opposite result. That is the whole case for understanding risk-reward. (These numbers illustrate the formula — they are not a claim about any real strategy.)
The costs nobody puts in the ratio
Spreads, commissions and overnight financing all eat into reward and add to risk. On a tight scalp, a two-pip spread on a ten-pip stop is a large share of the trade. Include costs when you calculate:
- Your real risk = stop distance plus spread/commission.
- Your real reward = target distance minus costs.
The shorter your timeframe, the more costs distort the ratio.
Common risk-reward mistakes
- Picking targets for the ratio, not the chart. If there is major resistance 30 pips above your entry, a 90-pip target is a wish.
- Moving the target further once in profit, then watching price reverse.
- Cutting winners early but letting losers run — this quietly turns a planned 1:2 into an actual 1:0.7.
- Ignoring win rate entirely. A high ratio with a very low win rate can still lose.
- Judging a strategy on ten trades. Small samples are noise; streaks of losses are normal even for sound strategies.
How to use risk-reward in practice
- Identify the setup and the invalidation level → stop.
- Identify the next realistic level price could reach → target.
- Calculate the ratio. If it's below your plan's minimum, skip the trade — don't fudge the levels.
- Size the position so the stop costs your fixed risk (see how to calculate position size).
- Record the planned R and the actual R in your journal.
Over time, your journal tells you your true average win, average loss and win rate — and therefore whether your chosen ratio works.
Frequently asked questions
Is a 1:2 risk-reward ratio good?
It can be. At 1:2 you need to win more than about one trade in three to break even before costs. Whether it's good for you depends on whether your strategy realistically reaches those targets often enough.
Is 1:1 risk-reward bad?
Not inherently. A 1:1 ratio needs a win rate above 50% after costs. Some higher-frequency approaches operate there, but there is little margin for error, so costs and discipline matter even more.
What risk-reward do professional traders use?
There's no single industry standard. Professionals generally focus on expectancy — the combination of ratio and win rate — rather than one fixed ratio, and they adapt targets to market conditions.
Does a higher risk-reward ratio mean more profit?
Not automatically. Further targets are hit less often. A higher ratio only helps if your win rate doesn't fall faster than the ratio rises.
Should I move my stop to breakeven to improve my ratio?
Moving to breakeven reduces risk on that trade but can also stop you out of trades that would have worked. Only do it according to a written rule, and track whether it helps in your journal.
Key takeaways
- R:R compares the distance to your stop with the distance to your target.
- Every ratio has a break-even win rate: 1 ÷ (1 + reward-to-risk).
- A "good" ratio is one your real win rate comfortably supports, after costs.
- Set the stop and target from the chart, then judge the ratio — never the reverse.
Go further: The free Trovia Academy covers risk per trade, journaling and the psychology of sitting through losing runs. If you'd like help working out a realistic ratio for your own approach, book a free strategy call — or join the free Telegram channel, where every trade idea comes with its stop, target and reasoning.
Educational content only — not financial advice. CFDs and other leveraged products are complex and carry a high risk of losing money rapidly. Read our risk warning.