Risk to Reward Ratio Calculator
Analyze your trade setups and understand if your potential profit outweighs the risk. Perfect for stock, crypto, and options trading.
Trade Parameters
Analysis Results
Risk to Reward Ratio
1:2.00
Total Risk
₹500
Total Reward
₹1,000
Trade Summary
Definition
The Risk to Reward ratio compares the potential loss (risk) to the potential profit (reward) in a trade. It helps traders evaluate whether a trade setup is worth taking based on the potential outcomes.
Why It Matters
A good risk-to-reward ratio ensures that even if you're wrong on some trades, your winning trades will compensate for the losses and generate overall profit.
Risk Management
Professional traders typically look for ratios of 1:2 or better, meaning they risk ₹1 to potentially make ₹2 or more. This allows for a sustainable trading strategy.
Formula Example
Trade Setup:
Calculation:
Result: This is a good trade setup! You're risking ₹5 to potentially make ₹10, giving you a favorable 1:2 ratio.
Risk Calculation
Risk per share = Entry Price - Stop Loss Price
Total Risk = Risk per share × Trade Size
Risk represents the maximum amount you could lose if the trade goes against you and hits your stop loss.
Reward Calculation
Reward per share = Target Price - Entry Price
Total Reward = Reward per share × Trade Size
Reward represents the potential profit you could make if the trade reaches your target price.
Risk to Reward Ratio
Risk to Reward Ratio = Risk ÷ Reward
This ratio helps you evaluate if the potential reward justifies the risk you're taking.
Step-by-Step Example
Given:
Step 1: Calculate Risk
Step 2: Calculate Reward
Step 3: Calculate Ratio
Interpretation: You're risking ₹2,000 to potentially make ₹4,000. This 1:2 ratio means you can be wrong 66% of the time and still be profitable!