Definition of Risk/Reward Ratio (R:R)
The ratio of potential loss to potential profit on a trade. A trade with a 50-pip stop loss and 100-pip take profit has a 1:2 risk/reward ratio. A minimum of 1:1.5 is generally recommended.
At a glance
Term
Risk/Reward Ratio (R:R)
URL slug
risk-reward-ratio-r-r
Category
Risk & capital
Short answer
The ratio of potential loss to potential profit on a trade.
Deep dives
/guide/risk-management/, /tools/lot-calculator/
Example
Example: $1,000 equity and 1% risk = a $10 cash cap. Size from “Risk/Reward Ratio (R:R)” and stop distance, not from a gut-feel lot size.
Common mistake
Common mistake: confusing “Risk/Reward Ratio (R:R)” with advertised max leverage — leverage alone does not set risk per trade.
Professional tip
Tip: write a cash daily loss limit independent of “Risk/Reward Ratio (R:R)”, then let the definition set size only inside that ceiling.
Related deep dives
Practice tools:
Related terms
FAQ
The ratio of potential loss to potential profit on a trade.
“Risk/Reward Ratio (R:R)” sits inside capital protection. Ignoring it turns leverage and margin from tools into a path to rapid loss.
Common mistake: confusing “Risk/Reward Ratio (R:R)” with advertised max leverage — leverage alone does not set risk per trade.