Risk-Reward Calculator

Understanding Risk-Reward in Forex

The risk-reward ratio (R:R) compares how much you stand to lose versus how much you stand to gain on a trade. It's calculated by dividing your potential reward (take profit distance) by your potential risk (stop loss distance). A 1:2 ratio means you risk 1 unit to make 2 — if you risk 20 pips, you target 40 pips.

With 20 pip stop and 40 pip target: 40/20 = 2.0 → 1:2 ratio. This is the most common minimum ratio among professional traders.

Required Win Rate

The higher your R:R ratio, the fewer trades you need to win to stay profitable. The break-even win rate formula:

Expectancy — Your Edge Quantified

Expectancy combines your R:R ratio and win rate into a single number: the average profit or loss per trade over the long run. A positive expectancy means your strategy makes money. A negative expectancy means it loses — regardless of how it feels trade to trade.

Example: 40% win rate, 1:2 R:R on a 20-pip risk. Expectancy = (0.4 × 40) − (0.6 × 20) = 16 − 12 = +4 pips per trade. After 100 trades, you expect +400 pips even though you lost 60 of them.

Frequently Asked Questions

How do you calculate risk-reward ratio?

Risk-Reward Ratio = Potential Reward / Potential Risk. If you risk 20 pips to make 60 pips, your R:R is 1:3. The ratio tells you how much you stand to gain for every unit of risk you take.

What is a good risk-reward ratio for forex?

Most professional traders aim for 1:2 or higher. A 1:2 ratio means you only need a 33% win rate to break even. A 1:3 ratio requires just 25%. Higher ratios give you more room for losing streaks while staying profitable.

How do you calculate required win rate?

Required Win Rate = 1 / (1 + Reward/Risk) × 100. For a 1:2 R:R: 1 / (1 + 2) × 100 = 33.33%. This is the minimum percentage of trades you must win to break even at that ratio.

What is expectancy in trading?

Expectancy = (Win Rate × Average Win) - (Loss Rate × Average Loss). A positive expectancy means your system makes money over time. A 40% win rate with 1:2 R:R gives: (0.4 × 40) - (0.6 × 20) = +4 pips per trade on average.