Risk Reward Calculator
Calculate the risk amount, reward amount, and risk:reward ratio for a trade from its entry price, stop-loss price, and take-profit price.
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Risk:Reward Ratio
1 : 3.00
Risk per Share
$3.00
Reward per Share
$9.00
How the Risk:Reward Ratio Is Calculated
Risk is the distance between your entry price and your stop-loss — the amount you stand to lose if the trade goes against you. Reward is the distance between your entry price and your take-profit target — the amount you stand to gain if the trade works out. Dividing reward by risk gives the risk:reward ratio, a quick check on whether a trade's potential payoff justifies its potential loss.
Reward = |Take-Profit Price − Entry Price|
Risk:Reward Ratio = Reward / Risk
Example
Buying a stock at $50 with a stop-loss at $47 and a take-profit target at $59 puts your risk at $3 per share and your reward at $9 per share — a 1:3 risk:reward ratio. That means for every $1 risked, the trade targets $3 in potential gain.
Common Use Cases
- Screening trade setups before entering a position.
- Setting stop-loss and take-profit levels that match a target ratio.
- Comparing multiple trade ideas by their risk:reward profile.
- Sizing positions consistently as part of a trading plan.
FAQs
What is considered a good risk:reward ratio?
Many traders look for at least 1:2 or 1:3, meaning the potential reward is two to three times the risk. A favorable ratio means the trade can still be profitable over time even if it wins less than half the time.
Does a good ratio guarantee a profitable trade?
No — the ratio only measures the potential payoff structure, not the probability of the trade hitting the target versus the stop. A favorable ratio combined with a reasonable win rate is what produces long-term profitability.
How does this work for a short trade?
The calculator uses absolute distances, so it works the same way whether the take-profit is above the entry (a long trade) or below it (a short trade) — just make sure the stop-loss and take-profit are entered on the correct sides of your entry price.