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Risk-Reward Ratio Calculator
Evaluate if the potential reward justifies the risk before a trade.
Risk-Reward Calculator
Evaluate whether a trade setup is worth taking
Risk-Reward Ratio
1 : 2.0
Risk per Share
$20
Potential Loss
$2,000
Potential Profit
$4,000
This setup meets the minimum 1:2 risk-reward threshold
Potential Profit$4,000
100%
Potential Loss$2,000
50%
Price Levels
Target$540
+$40 (8.0%)
Entry$500
-$20 (4.0%)
Stop-Loss$480
Before entering any trade, evaluate whether the potential reward justifies the risk. This calculator shows the risk-reward ratio and flags setups that don't meet the 1:2 minimum threshold. A disciplined approach to risk-reward analysis is essential for profitable trading over the long term.
Frequently Asked Questions
What is a risk-reward ratio?
The risk-reward ratio compares the potential loss (risk) to the potential gain (reward) of a trade. A 1:2 ratio means the potential reward is twice the potential risk. It is calculated as: (Entry Price − Stop-Loss) ÷ (Target Price − Entry Price).
What is the minimum risk-reward ratio for a trade?
Most traders look for a minimum 1:2 risk-reward ratio — meaning the potential reward is at least twice the potential loss. This way, even if only half your trades are winners, you remain profitable overall. Some strategies require 1:3 or higher.
How do I use risk-reward ratio with position sizing?
First use this calculator to confirm the trade has an acceptable risk-reward ratio (1:2 or better). Then use the Position Size Calculator to determine how many shares to buy based on your stop-loss and risk percentage. Together, they form a complete trade risk management system.