Risk/Reward Ratio
Pronunciation: risk-ree-WARD RAY-shee-oh
The ratio between a trade’s potential loss and its target profit, e.g. RR 1:2.
Also known asR:RReward-to-Risk
Definition
Risk/reward ratio (R:R) measures planned reward against planned risk on a trade. A high ratio can offset a lower win rate, and a low ratio demands a higher win rate to stay profitable.
In plain English — The risk/reward ratio compares the distance from entry to stop loss with the distance from entry to take profit. Set before entry, it tells you how many units of reward you aim for per unit of risk. It only makes sense alongside your win rate.
Example
Entry 1.1000, stop 1.0950 (50 pips risk), target 1.1150 (150 pips). The risk/reward ratio is RR 1:3.
Related terms
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