Risk Reward Ratio Calculator
The risk-to-reward ratio (R:R) is one of the most fundamental metrics in trading. It tells you how much potential profit a trade offers relative to its potential loss. A trade with a 1:3 R:R means you are risking $1 to potentially make $3. Understanding and calculating R:R before entering a trade is essential for long-term profitability. The EZtrade risk reward calculator computes your R:R instantly and supports up to 5 take-profit targets with automatic percentage distribution.
Why Risk Reward Ratio Matters
Even a trader with a 40% win rate can be highly profitable if their average winner is significantly larger than their average loser. This is where R:R comes in. If you consistently take trades with a 1:2 or better R:R, you only need to win 34% of your trades to break even. With a 1:3 R:R, you only need a 25% win rate. By filtering trades through an R:R lens, you naturally eliminate low-quality setups and focus on trades that offer the best risk-adjusted returns.
How to Calculate Risk Reward Ratio
The R:R ratio calculation is simple:
For a long trade with entry at $100, stop loss at $98, and target at $106, the risk is $2 and the reward is $6, giving you a 1:3 R:R ratio. For short trades, the formula is reversed. EZtrade handles both long and short calculations automatically and also computes the dollar P&L at each target level based on your position size.
Multi-Target R:R Analysis with T1-T5
Many traders scale out of positions at multiple price targets. EZtrade supports up to 5 take-profit targets (T1 through T5) with customizable percentage distribution. For example, you might take 40% off at T1 (1:1 R:R), another 30% at T2 (1:2 R:R), and let the remaining 30% run to T3 (1:3 R:R). The calculator shows you the expected P&L at each level and the blended R:R for the entire trade, giving you a complete picture before you enter.
Minimum R:R Guidelines
1:1
Minimum viable. Need 50%+ win rate.
1:2
Good. Profitable at 34%+ win rate.
1:3+
Excellent. Profitable at 25%+ win rate.
Calculate Your R:R Now
Free calculator with multi-target support. No sign-up required.
Frequently Asked Questions
What is a good risk reward ratio?
A minimum of 1:2 is recommended for most trading strategies. This means for every dollar you risk, you target at least two dollars of profit. Higher R:R ratios (1:3 or better) give you more room for error in your win rate.
Can I use R:R for both stocks and futures?
Yes. The R:R concept applies universally across all markets. EZtrade calculates R:R for both stocks and futures, automatically accounting for contract specifications like point values and tick sizes when computing dollar P&L.
Should I always aim for high R:R trades?
Not necessarily. Very high R:R trades (1:5+) typically have lower win rates because the target is far from entry. The best approach is to find a balance between R:R and probability. Most successful traders find their sweet spot between 1:2 and 1:3 R:R.
Related tools: Stock Position Size Calculator | Futures Position Size Calculator | Trading Journal