Risk/Reward Ratio Explained with Real Examples (2026 Guide)

The risk/reward ratio decides whether a trading system is profitable long-term. Learn the formula, real examples, and how to combine R:R with win rate to build an edge.

What Is the Risk/Reward Ratio?

The risk/reward ratio (R:R) compares the money you can lose on a trade against the money you can make. A 1:3 R:R means risking $1 to make $3. It is the single lever that separates disciplined traders from gamblers.

The Formula

R:R = (Target − Entry) ÷ (Entry − Stop loss)

Skip the math — plug the numbers into the Bizzlytics Risk/Reward Calculator and get the ratio instantly.

Three Real Examples

Example 1 — Long stock, tight stop

Entry $100, stop $98, target $110. Risk = $2. Reward = $10. R:R = 1:5. Break-even win rate = 1 / (1 + 5) = 16.7%. Even winning 25% of the time is profitable.

Example 2 — Forex swing trade

EURUSD entry 1.0800, stop 1.0750 (50 pips), target 1.0900 (100 pips). R:R = 1:2. Break-even win rate = 33.3%. A 40% win rate here compounds into a solid edge.

Example 3 — Crypto scalp

BTC entry $60,000, stop $59,600 (0.67%), target $60,400 (0.67%). R:R = 1:1. Break-even win rate = 50%. Doable, but any slippage or fees turn this into a losing system fast.

The R:R × Win Rate Cheat Sheet

1:1 → need 50%+ win rate
1:2 → need 33% win rate
1:3 → need 25% win rate
1:5 → need 17% win rate

Common Mistakes

Moving your stop — instantly destroys the pre-planned R:R.
Cutting winners early — a 1:3 trade closed at 1:1 kills the math.
Ignoring fees — crippling for 1:1 scalps.
Assuming higher R:R alone = edge — a 1:10 setup with 5% win rate is a loser.