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.
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.
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.
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.
Calculate the risk reward ratio for your trade