Tool 02 / Risk vs reward
What does the trade pay to risk?
The ratio of potential reward to potential loss, plus the win rate you need just to break even.
Works for long and short setups. Formula shown below.
Result
- Risk per unit
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- Reward per unit
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- Risk / reward ratio
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- Break-even win rate
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The formula
Distance is the whole game.
- Risk per unit = the distance between entry and stop.
- Reward per unit = the distance between entry and target.
- Ratio = reward ÷ risk. A 3:1 trade pays three units for every one at risk.
- Break-even win rate = risk ÷ (risk + reward) × 100. Below this win rate, the setup loses money even when it "wins" often.
Worked example
Long EUR/USD at 1.1000, stop 1.0950, target 1.1150. Risk is 50 pips, reward is 150 pips, so the ratio is 3:1. Break-even win rate is 50 ÷ (50 + 150) = 25%.
A high ratio is not a prediction. It only tells you the price of being wrong — the win rate needed to stay whole.
What this tool does not do
It does not estimate probability, account for spreads, slippage or fees, or decide whether the setup is worth taking. It answers one question honestly: what the trade pays relative to what it risks.
Risk warning: leveraged trading can produce rapid losses. Never risk money you cannot afford to lose.