What Is a Good Risk Reward Ratio in Trading?

A risk reward ratio compares the profit a trade can make with the loss it can take. A ratio of 1 to 2 means you risk 1 to make 2. A good ratio is one that, together with your win rate, leaves the average trade with a positive result. On its own no ratio is good or bad.

The table below makes that concrete. At a 30% win rate and a reward of 3 to 1, the average trade earns 0.2R. At a 60% win rate and a reward of 1 to 1 it also earns 0.2R. Two very different styles reach the same expectancy, while a reward of 2 to 1 at a 30% win rate loses 0.1R per trade. The ratio matters only once you know how often the trade works.

There is also a trade-off the ratio hides. A farther target is usually reached less often than a near one, so raising the ratio by moving the target out tends to lower the win rate. Picking a ratio first and placing the target to fit it can mean choosing a level the market rarely reaches. The risk reward ratio calculator shows what a given ratio is worth at your win rate.

The ratio on the order ticket is the planned one. The realized ratio is your average win divided by your average loss over many trades, and the two often differ. Closing winners early, widening a stop or holding a loser longer all pull the realized ratio below the plan. See why traders cut winners early and hold losers and why traders move their stop-loss.

Costs belong in the ratio too. Fees and slippage reduce the reward and add to the risk, which matters most for short targets. Check what your costs do with the trading fee calculator before relying on a small-target plan.