A risk-reward calculator compares the planned amount at risk with the planned reward if the target is reached. It describes a payoff plan; it does not show the probability of either outcome or prove that the trade has positive expectancy.
Calculate planned risk and reward
The four formulas
- Risk distance = absolute value of entry minus stop.
- Reward distance = absolute value of target minus entry.
- Reward-to-risk ratio = reward distance divided by risk distance.
- Break-even win rate before costs = risk ÷ (risk + reward) × 100.
Distance must be converted into money
Price distance alone does not show account risk. Multiply the risk distance by position quantity and the verified monetary value per price unit, then include fees and expected slippage. The position-size calculator handles the separate quantity decision.
What the ratio can and cannot tell you
| Result | Useful meaning | Limit |
|---|---|---|
| Risk distance | Planned distance to invalidation | A stop may fill at a worse price |
| Reward distance | Distance to the selected target | The target is not guaranteed to trade |
| Reward-to-risk | Planned reward for each unit at risk | Contains no probability estimate |
| Break-even rate | Win frequency required in a two-outcome, cost-free model | Real outcomes include costs, partial exits and varied wins/losses |
Costs raise the true break-even requirement
Spread, commission, slippage and financing reduce average net wins or increase net losses. A strategy with varied exits also cannot be represented perfectly by one planned ratio. Use actual completed outcomes in the expectancy calculator rather than substituting the target ratio for realized evidence.
Common errors
- Moving a stop only to produce a more attractive ratio.
- Assuming a high ratio means a high-quality setup.
- Ignoring the probability of reaching the target before invalidation.
- Using price points as if they were account-currency amounts.
- Leaving spread and slippage out of the comparison.
Use the calculation inside a complete decision
The stop should follow the market condition that invalidates the thesis. The target should follow the setup's exit logic. Position size then translates the risk into exposure. Review Risk-Reward Ratio, Trade Management and Risk Management before treating the output as actionable.
Return to MFXG tools for related calculators and worksheets.