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Finance Calc Kit
Investments

Risk Reward Ratio Calculator

Calculate the risk-reward ratio for your trades based on entry price, stop loss, and target price.

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Risk-reward ratio

2.00 : 1

$150.00 reward per $75.00 risk

Risk per share

$75.00

Reward per share

$150.00

Position size

133 shares

Risking $10,000.00 (2.0% of account)

Potential profit

$19,950.00

If target is reached

Potential loss

$9,975.00

If stop loss is hit

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What is the risk-reward ratio?

The risk-reward ratio compares how much you could gain on a trade versus how much you could lose. Traders use it to filter setups before entering a position and to size trades consistently.

To size a position from account risk alone, use the position size calculator. For portfolio-level drawdown analysis, try the maximum drawdown calculator.

Risk-reward ratio formula

Risk-Reward Ratio=∣Target Price−Entry Price∣∣Entry Price−Stop Loss Price∣\text{Risk-Reward Ratio} = \frac{|\text{Target Price} - \text{Entry Price}|}{|\text{Entry Price} - \text{Stop Loss Price}|}

A ratio of 2:1 means the potential reward is twice the potential risk per share. Many traders prefer ratios of at least 2:1 or 3:1, though the right threshold depends on win rate and strategy.

Position sizing from account risk

Position Size=⌊Account Balance×Risk %100∣Entry−Stop Loss∣⌋\text{Position Size} = \left\lfloor \frac{\text{Account Balance} \times \frac{\text{Risk \%}}{100}}{|\text{Entry} - \text{Stop Loss}|} \right\rfloor

Potential profit equals position size times reward per share. Potential loss equals position size times risk per share and should match your planned risk amount when the stop loss is hit.

Worked example

Entry at $1,500, stop loss at $1,425, and target at $1,650 give $75 risk and $150 reward per share, for a 2:1 ratio. With a $500,000 account risking 2% ($10,000), position size is 133 shares. Potential profit is $19,950 and potential loss is $9,975.

Frequently asked questions

What is a good risk-reward ratio?
Many traders look for at least 2:1, meaning potential reward is double the risk. A higher ratio can offset a lower win rate, but the ratio alone does not guarantee profitability.
Does a 2:1 ratio mean I will profit?
No. You still need winning trades often enough to cover losses and costs. A 2:1 ratio with a 40% win rate can still be profitable, while a 2:1 ratio with a 20% win rate may not be.
Should I use limit or market prices?
Use the prices you actually plan to trade: your intended entry, stop loss, and profit target. Slippage and commissions are not included in this calculator.
Why floor the position size?
Fractional shares are not available in all markets. Flooring ensures the position does not exceed your planned risk per share.
Can I share my inputs?
Yes. Changing fields updates the page URL for easy sharing.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.