Risk Reward Calculator — Ratio, Formula and Trading Costs
Calculate risk:reward from entry, stop loss and take profit. Compare gross and net ratios, break-even rate and a worked example; set a target after costs.
Enter a trade plan or inspect the worked example. Compare the gross price-distance ratio with the ratio after your additional trading costs. Live prices, charts and saved plans are available in the second mode.
See what your risk/reward ratio means
Compare price distances with the result after costs. Risk:reward 1:2 means two units of reward for one unit of risk.
How to use the risk reward calculator
Choose long or short, then enter entry, stop loss and take profit. Levels can be entered as prices, pips from entry or percentages from entry. Provide the price movement for one pip from your instrument specification. The preview updates as you type; Check calculation confirms that the required fields form a valid plan.
Risk reward ratio formula and example
Gross reward/risk = distance from entry to target / distance from entry to stop. With an illustrative long entry at 1.1000, stop at 1.0980, target at 1.1040 and pip size 0.0001, risk is 20 pips and reward is 40 pips. Reward/risk is 2, written as risk:reward 1:2. This notation states the order explicitly; some sources use the inverse convention.
How trading costs change the ratio
The model applies one additional round-trip cost to both outcomes: net risk = risk pips + costs; net reward = reward pips − costs. In the 20/40 example, 2 pips of additional costs produce 22 pips of loss and 38 pips of reward: net reward/risk is about 1.73. Add only costs not already reflected in your execution prices, so spread is not counted twice. If costs equal or exceed gross reward, hitting the target produces zero or negative net profit.
Break-even rate and expectancy
For two fixed outcomes with positive net reward, break-even target-hit rate = 1 / (1 + net reward/risk). It is 33.33% for gross 1:2 and about 36.67% for the 22/38 net example. If net reward is zero, mathematical break-even requires 100% target hits; if it is negative, break-even is unattainable. Expectancy in units of the net stop loss is p × net reward/risk − (1 − p). These equations describe assumptions, not your actual win probability or future returns.
Set a take profit for a target ratio
The target solver uses the chosen net reward/risk multiple after the entered costs. For net 1:2 with a 20-pip stop and 2-pip costs, the gross target distance must be 2 × (20 + 2) + 2 = 46 pips. The calculated target must still be on the correct side of entry. Review your prices and Check calculation after changing direction, units or assumptions.
When to calculate position size
Risk:reward compares two planned outcomes; it does not select a lot size or estimate the probability of reaching your target. After reviewing the ratio, use the position size calculator with your instrument, account currency, stop and risk budget. The general mode can pass these inputs to that calculator.
Risk reward questions
How do I calculate a risk reward ratio?
Divide the planned reward distance by the stop distance for reward/risk. A reward twice the risk is a multiple of 2, written here as risk:reward 1:2. Keep units consistent and check which order a source uses.
What does a 1:2 risk reward ratio mean?
It means one unit of risk for two units of potential reward before the specified costs. A 20-pip stop and a 40-pip target give gross 1:2; trading costs can reduce the net multiple. It does not predict that the target will be reached.
Can I enter stop loss and take profit in pips?
Yes. First provide entry and the price movement for 1 pip, then switch the level unit to pips. Percentage inputs represent distance from entry, not percentage risk of your account.
How should I include spread and commission?
Enter one additional opening-and-closing cost estimate in pips. Include only amounts not already captured by the prices you entered. Using actual execution prices and then adding the same spread again would double count it.
What if costs are greater than the target reward?
If costs exceed the gross reward, the net target outcome is a loss and break-even is unattainable in the fixed-outcome model. If costs exactly equal the reward, the target outcome is zero: mathematical break-even requires 100% target hits and still yields no positive expectancy.
What win rate is needed for a 1:2 ratio?
With fixed outcomes and no costs, the mathematical break-even target-hit rate is 1 / (1 + 2), or 33.33%. Costs raise the required rate. This is not an estimate of your trading performance and does not include changing exits or gap losses.
Does the target solver include trading costs?
Yes. It solves a target for the desired net reward/risk multiple: target distance = desired multiple × (stop distance + costs) + costs. The entry, stop and pip size must be valid for the chosen direction.
Can this calculator place trades or install an MT4 indicator?
No. This is a web planning tool. It does not connect to your account, place orders or provide a terminal installer. Live reference prices in the second mode do not guarantee executable prices or stop fills.
Is a 1:2 or 1:3 risk reward ratio always better?
A larger planned target does not establish a higher chance of profit. Ratio, target-hit rate and costs are separate assumptions. This calculator does not recommend a universal ratio or determine the likelihood of a target being reached.
