Risk-Reward Ratio Calculator
Risk-Reward Ratio Calculator
The money at risk and the money to gain on a trade, the reward-to-risk ratio, and the share of trades you would have to win just to break even, before and after costs.
Reward-to-risk ratio
Buy 100 at $500, stop $480, target $560, costs 0.1% round trip
Reward-to-risk and the break-even win rate
- risk
- the loss if the stop is hit: |entry − stop| × quantity
- reward
- the gain if the target is hit: |target − entry| × quantity
- costs
- round-trip costs, paid on every trade; 0 for the before-costs figure
Worked example
Buy 100 at $500, stop $480, target $560, costs 0.1% round trip
Risk = 20 × 100 = $2,000; reward = 60 × 100 = $6,000
Ratio = 60 ÷ 20 = 3.00 to 1
Break-even win rate = 2,000 ÷ 8,000 = 25.00%
Costs = 0.1% × 50,000 = $50; after costs = 2,050 ÷ 8,000 = 25.62%
Break-even win rate by reward-to-risk ratio, before costs
| Ratio | Win rate to break even |
|---|---|
| 0.5 to 1 | 66.7% |
| 1 to 1 | 50.0% |
| 1.5 to 1 | 40.0% |
| 2 to 1 | 33.3% |
| 3 to 1 | 25.0% |
| 4 to 1 | 20.0% |
What the ratio tells you, and what it leaves out
The reward-to-risk ratio compares what a trade stands to make if the price reaches your target with what it loses if the price reaches your stop. On its own it proves nothing. A trade with a 3 to 1 ratio that hits its target one time in five loses money; a 1 to 1 trade that wins six times in ten makes money. The number that links the two is the break-even win rate, risk ÷ (risk + reward): win exactly that share of similar trades and you end level. At 3 to 1 it is 25%; at 1 to 1, 50%.
Costs move it. Brokerage, exchange charges and taxes are paid on every trade, winners and losers, so they come off each win and add to each loss. The page takes them as a percentage of the trade value at entry, for the buy and the sell together. In the example, $50 of costs lifts the break-even win rate from 25.00% to 25.625%. On a 1 to 1 trade with a 0.1% cost and a stop only 1% away, the win rate needed rises from 50% to 55%: close stops make costs a large part of the risk. SEBI’s own studies of individual traders in equity futures and options found that 89% lost money in 2021–22 (study of January 2023), 93% over the three years 2021–22 to 2023–24 (September 2024), and nearly 91% in 2024–25 (July 2025), when their net losses came to ₹1,05,603 crore. SEBI’s September 2024 release put individual traders’ transaction costs at about ₹50,000 crore over three years.
The page does not know how often your targets are reached, which is the part that decides the outcome, and a win rate from a handful of past trades is a weak estimate. Stops can also fill beyond their price when the market gaps. To size the trade so that a stop costs a set share of your account, use the position size calculator; for percentage changes in general, the percentage calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How is the risk-reward ratio calculated?
Reward ÷ risk, where reward = target − entry and risk = entry − stop (reversed for a short). Buying at 500 with a stop at 480 and a target at 560 is 60 ÷ 20 = 3 to 1.
What win rate do I need to break even?
Risk ÷ (risk + reward). At 3 to 1 that is 1 ÷ 4 = 25% before costs; at 1 to 1 it is 50%. Costs raise it.
Is a higher risk-reward ratio always better?
No. Moving the target further away raises the ratio but usually lowers the chance of reaching it. Only the ratio and the real win rate together decide whether a set of trades makes money.
How do costs change the break-even win rate?
They are paid on every trade, so the win rate needed becomes (risk + costs) ÷ (risk + reward). In the example 25% becomes 25.625%.
Related calculators
References
- Tharp VK. Trade Your Way to Financial Freedom. 2nd ed. New York: McGraw-Hill; 2007. Position sizing as a fixed fraction of the account at risk, and expressing a trade’s outcome as a multiple of the amount risked (R).
- Securities and Exchange Board of India (SEBI). Study: Analysis of Profit and Loss of Individual Traders dealing in Equity F&O Segment. 25 January 2023. 89% of individual equity F&O traders lost money in FY 2021–22.
- SEBI. Press release, 23 September 2024: Updated SEBI Study Reveals 93% of Individual Traders Incurred Losses in Equity F&O between FY22 and FY24; Aggregate Losses Exceed ₹1.8 Lakh Crores Over Three Years. Average loss about ₹2 lakh per trader; about ₹50,000 crore spent on transaction costs.
- SEBI. Comparative study of growth in Equity Derivatives Segment vis-à-vis Cash Market after recent measures. Released 7 July 2025. Nearly 91% of individual traders incurred a net loss in equity derivatives in FY 2024–25; their net losses were ₹1,05,603 crore, against ₹74,812 crore in FY 2023–24.