In one lineRisk-to-reward compares what you can lose with what you may gain.
Start with the dollar risk
Example
Account: $10,000
Risk: 1% = $100
Potential reward: $200
Planned risk-to-reward = 1:2
A bigger ratio is not automatically better
A 1:5 target is meaningless if the setup rarely reaches it. Risk-to-reward must be considered together with probability, execution and costs.
Related toolRisk / Reward CalculatorCompare risk and reward →
Remember this
- Define dollar risk first.
- Reward is potential, not guaranteed.
- Judge the full strategy, not one ratio.
Educational content.
This lesson is provided for general educational and informational purposes and is not personal financial or investment advice.