Risk Reward Ratio in Forex: What It Is and How to Use It
The risk reward ratio (R:R) compares the potential profit of a trade to the potential loss. A 1:3 R:R means you risk $1 to make $3. It’s one of the most important metrics in trading.
How to Calculate R:R
Risk = Entry Price - Stop Loss (in pips or dollars)
Reward = Take Profit - Entry Price (in pips or dollars)
R:R = Reward ÷ RiskExample: Buy EUR/USD at 1.1050, stop at 1.1030 (20 pip risk), target at 1.1100 (50 pip reward).
- R:R = 50 ÷ 20 = 1:2.5
Minimum R:R by Win Rate
Your R:R and win rate determine if you’re profitable overall.
| Win Rate | Minimum R:R | Breakeven at |
|---|---|---|
| 30% | 1:2.34 | 1:2.50 |
| 40% | 1:1.50 | 1:1.75 |
| 50% | 1:1.00 | 1:1.25 |
| 60% | 1:0.67 | 1:1.00 |
| 70% | 1:0.43 | 1:0.75 |
Formula: Minimum R:R = (1 ÷ Win Rate) — 1 + slippage buffer
A trader with 40% win rate needs at least 1:1.5 R:R to break even. A 60% win rate trader can profit with 1:1.
Setting Stop Loss and Take Profit Levels
Stop Loss Placement
- Support/resistance: Below key swing lows for longs, above swing highs for shorts
- ATR-based: 1.5× to 2× Average True Range from entry
- Structure-based: Below recent structure break for trend trades
Take Profit Placement
- 1:1 from structure break: Target the same distance as the breakout move
- Previous highs/lows: Obvious liquidity zones
- Risk multiple: Set TP at a fixed R:R (1:2, 1:3, etc.)
Common R:R Mistakes
- Fixing R:R before analyzing the chart — The market determines where stops and targets go, not a number
- Unrealistic targets — Targeting 1:5 on a 1-minute scalping strategy rarely works
- Moving stops wider without reducing position size — Your dollar risk should stay the same
- Ignoring spread and commission costs — These eat into small R:R trades significantly
R:R by Trading Style
| Style | Typical R:R | Win Rate |
|---|---|---|
| Scalping | 1:0.5 to 1:1 | 65-80% |
| Day trading | 1:1 to 1:3 | 40-55% |
| Swing trading | 1:2 to 1:5 | 30-45% |
| Position trading | 1:3+ | 20-35% |
Track Your Actual R:R
Logging your trades with entry, stop loss, and take profit levels lets you calculate your realized average R:R — not just your planned one. Most traders discover their actual R:R is lower than they think due to early exits and moved stops.
Our trading journal automatically tracks R:R per trade and calculates your average across all sessions and strategies. Use the analytics dashboard to see which R:R ranges produce the best profit factor for your style.