What Is a Good Risk/Reward Ratio?
Risk/reward ratio is one of the most quoted — and most misunderstood — numbers in trading. A '1:3' setup sounds great, but on its own it tells you almost nothing about whether you'll make money. What matters is how risk/reward combines with your win rate.
This guide explains what risk/reward ratio actually measures, what counts as a good one, and the simple math that ties it to profitability.
What risk/reward ratio means
Risk/reward ratio compares how much you stand to lose if your stop is hit to how much you stand to gain if your target is reached. If you risk $100 to make $300, your risk/reward is 1:3. The first number is always your risk (1 unit); the second is your potential reward in the same units.
It's measured from your entry to your stop (the risk) and from your entry to your target (the reward) — so it's defined entirely by where you place those two levels, before the trade even starts.
Why R:R is meaningless without win rate
Here's the part most beginners miss: a high risk/reward ratio does not mean a strategy is profitable. A 1:5 setup that only wins 10% of the time loses money. A 1:1 setup that wins 60% of the time makes money. The two numbers are inseparable.
The break-even win rate for any ratio is: Win% = 1 ÷ (1 + reward/risk). So a 1:2 setup breaks even at 33% wins, a 1:3 at 25%, and a 1:1 at 50%. To be profitable, your actual win rate just needs to beat that threshold.
So what's a 'good' ratio?
For most discretionary traders, a minimum of 1:1.5 to 1:2 is a sensible floor — it means you don't need to win most of your trades to come out ahead. Trend-following and breakout strategies often target 1:3 or higher, accepting lower win rates in exchange for big winners.
Mean-reversion and scalping strategies frequently use ratios below 1:1 but win far more often. Neither is 'better' in the abstract — a good ratio is simply one your realistic win rate can support with margin to spare after costs.
Don't forget costs and slippage
Commissions, spreads, and slippage quietly erode your real risk/reward. A setup that looks like 1:2 on paper might be 1:1.6 after costs, which raises the win rate you need. Always plan trades using net numbers, and re-check your break-even after fees before committing.
Key takeaways
- →Risk/reward compares potential loss (1 unit) to potential gain.
- →A high ratio alone doesn't make a strategy profitable — win rate decides.
- →Break-even win rate = 1 ÷ (1 + reward/risk).
- →1:1.5–1:2 is a sensible minimum for most discretionary traders.
- →Always evaluate the ratio using net numbers, after costs.
Frequently asked questions
Is a higher risk/reward ratio always better?+
No. Higher ratios usually come with lower win rates. A 1:5 setup that rarely hits its target can lose money, while a 1:1 setup with a high win rate can be very profitable. The ratio is only useful alongside your realistic win rate.
What win rate do I need for a 1:2 ratio?+
About 34%. The break-even win rate for 1:2 is 1 ÷ (1 + 2) = 33.3%, so anything consistently above that — after costs — is profitable.
How do I improve my risk/reward?+
Tighten entries so your stop can sit closer, place targets at realistic levels supported by structure, and avoid widening stops mid-trade. Improving R:R only helps if your win rate doesn't collapse as a result.
Calculators in this guide
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For educational purposes only. Not financial advice.