Risk Management
Forex Risk-to-Reward Ratio: How to Calculate It
A risk-to-reward ratio compares how far price would have to move to hit your stop-loss with how far it would have to move to reach your take-profit. This guide covers only the calculation — not whether any particular ratio suits a strategy.
4 min read
All prices and rates below are illustrative examples, not live quotes.
The formula
Risk = |Entry − Stop-loss| Reward = |Take-profit − Entry| Reward-to-risk = Reward ÷ Risk
In pips or in money the ratio is the same, because both sides use the same position size.
Example
Worked example
Long EUR/USD
- Entry 1.0850, stop-loss 1.0820 → risk 30 pips
- Take-profit 1.0940 → reward 90 pips
- Ratio = 90 ÷ 30 = 3
Written as 1:3 — the potential reward is three times the potential loss.
At 0.5 lots ($5 per pip), that's $150 at risk and $450 potential reward.
A related calculation
Ignoring costs, the share of trades that would need to hit take-profit for wins and losses to cancel out is 1 ÷ (1 + ratio). For a ratio of 3, that's 25%. Spread, commission and slippage raise this figure. This is arithmetic only; it doesn't describe how often any strategy actually wins.
Limitations
- The ratio ignores probability — a distant take-profit may rarely be reached.
- Costs reduce the reward and increase the risk.
- Stops can fill at worse prices in fast markets.
- Moving stops or targets during a trade changes the ratio.
How to use the calculator
- Open the Forex Risk/Reward Calculator.
- Choose the pair and direction, then enter entry, stop-loss and take-profit.
- Optionally enter lot size to see money amounts.
- Press Calculate to see risk, reward and the ratio.
Run your own numbers
Compare risk and reward in pips and money from your trade levels.
Related calculators
Frequently asked questions
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