1. What is a Reward-to-Risk Ratio Calculator?

Definition: This calculator determines the ratio between potential profit and potential loss in a trading position.

Purpose: It helps forex traders evaluate whether a trade is worth taking based on the potential reward relative to the risk.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( RR \) — Reward-to-risk ratio (dimensionless)
• \( G \) — Potential gain (currency, e.g., USD)
• \( L \) — Potential loss (currency, e.g., USD)

Explanation: The potential gain is divided by the potential loss to determine how many times greater the reward is compared to the risk.

3. Importance of Reward-to-Risk Ratio

Details: A ratio greater than 1 means potential reward exceeds risk. Professional traders often look for ratios of at least 2:1.

4. Using the Calculator

Tips: Enter your expected gain and potential loss in USD (or your trading currency). Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is a good reward-to-risk ratio?
A: Generally, 2:1 or higher is recommended, meaning potential profit is at least twice the potential loss.

Q2: Can the ratio be less than 1?
A: Yes, but this means you're risking more than you stand to gain, which is typically not advisable.

Q3: How do I determine my potential gain and loss?
A: Gain is the difference between entry and take-profit prices, loss is between entry and stop-loss prices.

Q4: Does this account for win rate?
A: No, this is just the ratio. Combine with win rate to evaluate trading strategy effectiveness.

Q5: Should I always aim for high ratios?
A: Not necessarily. Very high ratios may have lower probability. Balance ratio with realistic targets.