Risk Reward Ratio Calculator

Risk Reward Ratio Calculator is a tool for traders and investors to calculate the risk and reward for an investment or a trade position.

What is the risk-reward ratio?

Risk-Reward ratio is a ratio to measure the potential losses against the gains with an investment, or stock trade. The lower the risk-reward ratio, the better because it means the potential gains are much greater than the risks involved. A stock trade or investment with a high risk-reward should be avoided as the risks are too high. On the other hand, an investment or business opportunity that offers an extremely low risk-reward ratio should raise suspicion for the investor.

How to calculate risk reward ratio?

To calculate the risk reward ratio of a stock trade, divide the net profit by the potential maximum losses. Risk Reward Ratio = Net Profit / Net Loss For example, if a stock is currently trading at $25 per share, and after carefully analyzing the stock, you determine that the stock could go up to $35 per share, but you also want to set a stop loss if the stock went down to $20. The net profit for this trade is ($35-$25)/$25 = 0.4 = 40% The potential loss for this trade is ($25-$20)/$25 = 0.2 = 20% Risk - Reward = 20:40 = 1:2 Therefore, the risk-reward ratio for this trade would be 1:2.

How to use the risk reward ratio calculator?

The risk reward ratio calculator is simple to use, all you need is three variables, buy price, profit target price, and the stop loss price. Buy Price - your entry price to buy the stock Profit Target Price - the price at which you would sell your stock for a profit Stop Loss Price - the price at which you would sell your stock for a loss to cut your losses short