Risk-reward ratio
Risk-reward ratio compares the amount risked on a trade to the amount targeted — a trade risking $100 to make $300 has a 1:3 risk-reward ratio.
The ratio only becomes meaningful when paired with win rate. Neither figure means anything alone: a 1:3 ratio with a 10% win rate loses money, and a 1:1 ratio with a 65% win rate makes it.
The break-even relationship
Break-even win rate is calculated as 1 / (1 + reward/risk). At 1:1 you need to win above 50% of the time. At 1:2, above 33.3%. At 1:3, above 25%. These are the thresholds before costs — spread, commission and slippage all raise them.
A high advertised risk-reward ratio is not evidence of a good strategy. Targets that are never reached still count as losses, so a 1:5 ratio that fills 8% of the time is worse than a 1:1 that fills consistently.
Related terms
Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.
Knowing the vocabulary is the easy part.
Every term here can be learned in an afternoon. Applying them consistently under pressure is the part that decides outcomes — and the part we measure.