Risk-reward calculator

How to calculate risk-reward ratio

For a basic long setup, the stop is below the entry and the target is above it. For a short, the stop is above the entry and the target is below it. The calculator validates that order before showing a result.

We display risk:reward as 1:R. A result of 1:2 means two units of potential reward for every unit of planned risk. Some platforms reverse this notation; look at the labels before comparing numbers.

Enter quantity in shares or underlying asset units, with every price and the total cost in the same quote currency. This calculator uses linear price differences. It does not convert forex lots, futures contracts, option payoffs or inverse contracts.

A 1:2 trade becomes 1:1.88 after costs

Take a hypothetical long entry at 100, a stop at 95 and a target at 110, with ten units. Before costs, the planned loss is 50 and the potential gain is 100. The gross ratio is 1:2.

Now enter 2 in total round-trip costs for the whole position. The planned loss becomes 52 and the potential gain becomes 98. Dividing 98 by 52 gives about 1.88 R. The default example above reproduces these numbers.

For the short example, an entry at 100, stop at 105 and target at 90 gives the same distances. Costs are added to the losing outcome and deducted from the winning outcome. The tool assumes the same total cost in either case; your actual execution costs can differ.

What does the break-even win rate mean?

The mathematical break-even win rate is planned net loss ÷ (planned net loss + potential net gain). In the example, 52 ÷ 150 is about 34.67%. It assumes every winning trade earns 98 and every losing trade loses 52, with no other outcomes.

This is a threshold under those assumptions, not an estimated chance that your setup wins. Partial exits, changing position sizes and different realized fills change the calculation. A larger target improves the displayed ratio without making that target more likely to be reached.

If you already have a trade record, use the trading expectancy calculator to combine your observed win rate with average realized wins, losses and costs. That checks the sample’s payoff rather than assuming every trade reaches today’s planned stop or target.

Also, a stop is not a guaranteed execution price. Investor.gov explains how stop orders work and why a triggered market order may fill at another price.

Start with the chart, then check the numbers

A calculator is most useful after you have a reason for the levels. Locate the structure, write down the condition that would invalidate the setup, then compare the proposed target with nearby support or resistance. Our multi-timeframe analysis guide walks through an example where the first obstacle changes the ratio.

CME’s risk-management lesson explains the relationship between risk limits, stop distance and position size. This tool checks your inputs; it does not choose an account risk percentage for you.

Once you have chosen that budget, size a share position from the stop distance and bring the resulting quantity back into this calculation.