What is Risk-Reward Ratio (RR)?
The ratio between the dollars risked and dollars targeted on a trade — 1:2 means risking $1 to potentially make $2.
Risk-reward ratio (RR) is the relationship between the loss accepted on a stop-loss and the gain targeted on a take-profit. A 50-pip stop and 100-pip target = 1:2 RR. A 30-pip stop and 90-pip target = 1:3 RR.
RR interacts with win rate to determine net profitability. Mathematically, breakeven win rate = 1 / (1 + RR). A 1:1 RR strategy needs 50% win rate to break even (before costs). A 1:2 RR strategy needs 33%. A 1:3 RR strategy needs 25%. Most retail traders mistakenly chase high win rates with poor RR — a 70% win rate strategy with 1:0.5 RR still loses money after costs.
Realistic professional RR targets: 1:1.5 to 1:3 on most setups. Anything claiming 1:5+ on the same strategy as 1:2 setups is usually backtest-fit and won't survive live conditions.