Before you take a trade, know its payoff. Enter your entry, stop-loss and target to get the risk per share, reward per share, the R:R ratio, and the exact win rate you need just to break even.
Every trade has two distances: how far price can fall to your stop (the risk) and how far it can rise to your target (the reward). The risk/reward ratio compares them. This calculator measures both from your entry and reports them three ways — as a clean ratio like 1 : 3, as a single reward-to-risk number, and as the break-even win rate that ratio demands.
Reward-to-risk = (Target − Entry) ÷ (Entry − Stop)
Example: ($115 − $100) ÷ ($100 − $95) = $15 ÷ $5 = 3.0, written 1 : 3.
The break-even win rate is the percentage of trades you must win just to avoid losing money at that ratio. The formula is elegant:
Break-even win rate = 1 ÷ (1 + reward-to-risk)
At 1 : 3 that is 1 ÷ 4 = 25%. Win one trade in four and you break even; win more and you profit.
New traders obsess over win rate, but a high win rate with a poor ratio is a trap. Win 70% of the time at 1 : 0.5 and you still bleed money, because the three losers cost more than the seven small winners earn. Flip it: a 1 : 3 ratio is profitable at just a 35% hit rate. The ratio sets the bar you have to clear with your win rate — clear it and your edge compounds.
It helps to memorise a few anchor points so you can size up a trade in your head:
Reality check: a great ratio is worthless if the target is unrealistic or the stop is so tight it gets hit by noise. This tool measures the planned trade — it cannot tell you how often price will actually reach your target. It ignores fees, slippage and gaps. Educational only, not financial advice — see investor.gov.
Once the payoff looks good, size the trade with the position size calculator, ground the idea in risk vs reward explained, then test it live in the stock market simulator.
The risk/reward ratio compares how much you risk on a trade to how much you stand to gain. A 1:3 ratio means you risk one dollar to make three. It is reward per share divided by risk per share.
Many traders look for at least 1:2, meaning the target is twice as far as the stop. A 1:2 ratio lets you be profitable while winning only about 34% of the time.
It is the percentage of trades you must win just to break even at a given reward-to-risk ratio. The formula is 1 divided by (1 plus reward-to-risk). At 1:2 that is about 33.3%.
Not always. Very ambitious targets have a higher reward-to-risk but a lower hit rate, because price rarely travels that far. The best trades balance a healthy ratio with a realistic chance of reaching the target.