Risk-reward calculator
Entry, stop and target give the reward-to-risk ratio. From it, the win rate you need just to break even: 1 ÷ (1 + R). At 2R you break even winning one trade in three.
- 33.3%breakeven win rate at 2R
- 1 ÷ (1 + R)the breakeven formula
- 0.35Rexpectancy at 45% wins and 2R
The stop and the target must sit on opposite sides of the entry; the direction follows from where the target is.
How it is calculated
Measure the risk
Risk is the distance from entry to stop. Buy EURUSD at 1.10000 with a stop at 1.09800: 20 pips.
Measure the reward
Reward is the distance from entry to target: 1.10400 is 40 pips away. Their ratio, the R multiple, says how many units of risk a winning trade returns: R = 2.
Find the breakeven and the expectancy
The breakeven win rate is 1 ÷ 3 = 33.3%. At a 45% win rate the expectancy is 0.45 × 2 − 0.55 = 0.35R a trade before costs; risking $500 a trade, that is $175 on average, over many trades and never guaranteed on any one.
What it means on a $100K Edge 2 Step
An evaluation has a target and a floor. On a $100K Edge 2 Step the Phase 1 target is 7.5% ($7,500) with a Max Daily Loss of $4,500 and a Max Loss of $9,000.
Positive expectancy is what moves an account toward its target over many trades; the loss limits decide whether it survives the losing runs on the way, which is what the drawdown calculator counts.
Profit Target
Every evaluation has a target and a floor. On a $100K Edge 2 Step the Phase 1 target is 7.5% ($7,500), the Max Daily Loss $4,500 and the Max Loss $9,000; there is no time limit to reach the target.
For education. The results are arithmetic on the figures you enter; the contract specification, prices and commission on your platform decide real results. Nothing here is financial advice, and trading leveraged products can lose money.
Risk-reward calculator: questions
What is a good risk-reward ratio?
There is no ratio that is good on its own: it only means something next to a win rate. 1:1 needs better than 50% wins to make money, 1:2 needs better than 33.3%, 1:3 better than 25%, before costs.
How do I calculate breakeven win rate?
Divide 1 by (1 + R). At R = 1.5 the breakeven win rate is 1 ÷ 2.5 = 40%.
Does commission change the maths?
Yes, it lowers every win and deepens every loss by the same amount. On a tight stop, commission is a larger share of the risk, so the real R is a little lower than the chart distance suggests.
What is expectancy?
The average result per trade in units of risk: win rate × R − loss rate. Positive expectancy means a set of trades should come out ahead over a large sample; it does not say anything about the next trade.
Put the numbers to work
Every plan, size and price, with the rules printed before you buy. No time limit on any evaluation.