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Risk Reward Ratio

What is the Risk Reward Ratio?

The Risk Reward Ratio is a fundamental concept in trading and investing that compares the potential profit of a trade to its potential loss. It helps investors evaluate the viability of a trading opportunity and manage their risk effectively.

How to Use the Calculator

To use this calculator, input the stock purchase price, the expected profit price (your target), and the price at which you would accept a loss (your stop-loss). The calculator will then compute the risk reward ratio for your potential trade.

Interpreting the Results

The calculator presents the risk reward ratio in a 1:X format, where X represents the potential profit in relation to the potential loss. A higher value of X indicates a more favorable risk-to-reward scenario. For example, a ratio of 1:3 means the potential profit is three times the potential loss.

Risk Reward Ratio Formula

The Risk Reward Ratio is calculated using the following formula:

Risk Reward Ratio = (Profit Target - Entry Price) / (Entry Price - Stop Loss)
                            

This formula quantifies the relationship between the potential profit and the potential loss of a trade, helping traders make informed decisions about their risk management strategy.

Risk Reward Ratio Calculator

Calculate the risk reward ratio for your trade