Risk Management
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Risk-Reward Ratio

Why risk-reward ratio matters and how to use it for long-term profitability.

Last reviewed: 2026-03-06

Article content

Overview

Risk-reward (R:R) is the ratio of potential profit to potential loss. A 1:2 trade risks $100 to make $200. Even with a 50% win rate, 1:2 is profitable. A 1:1 ratio needs 55%+ wins to break even. Aim for at least 1:1.5, preferably 1:2 or higher.

R:R and Breakeven Win Rate1:1Needs ~55%+to profit1:250% wins =profitable1:3~40% wins =profitableAim for at least 1:1.5, preferably 1:2+
R:R and breakeven win rate: 1:1 vs 1:2 vs 1:3

Calculating Rr

Measure from entry to stop loss (risk) and entry to take profit (reward). R:R = reward / risk. Example: 20 pip stop, 40 pip target = 1:2. Use our risk-reward calculator to compute exact dollar amounts.

Application

Only take trades that meet your minimum R:R. If the logical stop is 30 pips but the target is only 20 pips, skip the trade or find a better entry. Quality over quantity.

Knowledge check

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With a 1:2 risk-reward ratio and 50% win rate, you are:

FAQ

Common questions about this topic.

What is a good risk-reward ratio?

Minimum 1:1.5. Many pros aim for 1:2 or higher. Depends on your win rate and strategy.

Can I have a high win rate with low R:R?

Yes, but you need a very high win rate to be profitable. 70% wins at 1:1 barely breaks even after costs.

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