Risk-Reward Ratio
Risk-Reward Ratio — The ratio of potential loss to potential gain on a trade — e.g. 1:2 means risking $1 to make $2.
- Quick definition: The ratio of potential loss to potential gain on a trade — e.g. 1:2 means risking $1 to make $2.
- Category: Strategy
Full Definition
Risk-reward (RR) ratio determines profitability at any given win rate. A strategy with 1:2 RR only needs ~33% win rate to break even, before costs. A strategy with 1:1 RR needs 50% win rate. Most prop-firm-funded traders run 1:1.5 to 1:3 average RR. Below 1:1 is sustainable only with very high win rates (rare).
Related Terms
Stop Loss · Take Profit · Win Rate
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