Risk-to-Reward Calculator
Compare the amount you could lose with the amount you could gain on a trade, using a stop-loss and a target price.
Below the entry price for a long position.
Above the entry price for a long position.
- Reward for each unit of risk
- 3.00 to 1
- Loss per share if stopped out
- $5.00
- Gain per share at target
- $15.00
A ratio says nothing about how likely each outcome is. Trading carries risk of loss, and this is an illustration, not a recommendation.
How it is calculated
Ratio = (target − entry) ÷ (entry − stop)
Example: entry at $100, stop at $95 and target at $115 gives a 3 to 1 ratio: $5 at risk for $15 of potential gain.
Assumptions and limitations
- The ratio ignores how likely the stop or the target is to be reached.
- Prices can gap past a stop-loss, so the loss can be larger than planned.
- This is an illustration, not a trading recommendation. Trading can lose money.
What this calculator tells you
The risk-to-reward ratio compares how much you could lose on a trade with how much you could gain, based on three prices: the entry price, a stop-loss price where you would exit if the trade goes against you, and a target price where you would take the profit. This calculator shows the amount at risk, the amount targeted, and the ratio between them.
The ratio is a way of describing a plan before it is carried out. It does not show whether a trade will succeed. A good ratio on paper means little if the stop and the target are unlikely to be reached as planned.
How the ratio is worked out
The risk is the distance between the entry price and the stop-loss price. The reward is the distance between the entry price and the target. The ratio equals the reward divided by the risk, and is usually written as one to some number. A ratio of 1 to 3 means the target is three times as far from the entry as the stop.
A worked example
Suppose a share is planned to be bought at 50, with a stop-loss at 45 and a target at 65. The risk is 5 per share, and the reward is 15 per share. The ratio is 15 divided by 5, which is 3, or 1 to 3. Each share that moves to the stop loses 5, and each share that reaches the target gains 15, before costs and tax.
What the ratio does not tell you
A favourable ratio does not mean a trade is likely to make money. A plan with a good ratio can still lose most of the time if the target is rarely reached. The win rate, the size of each position and the costs of trading all affect the result over many trades, and none of them is captured by the ratio on its own.
Prices can also jump past a stop-loss, so the actual loss may be larger than the planned figure. Stops are not guaranteed to fill at the chosen price in fast markets.
Limits of the calculation
The calculator uses the three prices you enter and does not include dealing costs, spreads, financing charges, or tax. It assumes the position is entered at the stated price and exits at the stop or target exactly. The result is a planning tool, not a recommendation to trade. Any investment can lose money, and trading with borrowed money increases the risk of loss.
Sizing the position
The ratio does not say how large a position should be. Decide in advance the maximum amount you are willing to lose on any single plan, then size the position so that hitting the stop loses no more than that amount. This keeps a run of losing plans from causing serious harm to your finances.
Using the result
Use the ratio to check that a plan's potential loss is acceptable relative to its potential gain before entering, and to test how the ratio changes if the stop or target moves. Pair it with a clear limit on the amount you are prepared to lose overall, because the ratio does not control the size of the position.
Checking the levels before entering
A plan's levels should come from a reason, not from the size of the ratio. Set the stop where the plan is wrong, and the target where the plan is complete. If the stop must be placed far from the entry to avoid normal movement, the risk may be larger than the ratio suggests, so check the distance in money terms before you decide.
Frequently asked questions
What is a good risk-to-reward ratio?
There is no universal figure. A higher ratio means more reward for each unit of risk, but the chance of the target being reached also matters. Judge the ratio together with how often the plan is likely to succeed.
Does a high ratio guarantee a profit?
No. The ratio describes the plan, not the outcome. A trade with a high ratio can still lose, and the stop may be reached more often than the target.
Does the calculator include trading costs?
No. Commissions, spreads, financing and tax reduce the actual result, so include them separately when you assess a plan.
Can a stop-loss protect me fully?
No. In fast or thin markets, the price may move past the stop before the order fills, so the loss can be larger than planned.
Is this a recommendation to trade?
No. The calculator only measures the ratio of a plan you enter. It does not recommend any trade, price or position size, and all trading carries a risk of loss.