Risk vs Reward Calculator
Calculate the relationship between your planned downside and potential upside before entering a trade.
Enter your planned entry price, stop-loss price, and profit target to see your risk per share, reward per share, risk/reward ratio, and break-even win rate.
Risk/Reward Calculator
Enter your planned entry, stop-loss, and profit target to calculate the potential risk/reward ratio before placing a trade.
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Create your free Execution Signals account to access the full Tools Portal and unlock more advanced trade planning features.
The full Risk/Reward Calculator includes:
Multiple profit targets
Long and short positions
Total dollar risk
Potential dollar profit
2:1, 3:1, and 4:1 target prices
Scenario comparisons
Break-even win rate analysis
Additional investor tools
What Your Risk/Reward Result Means
A risk/reward ratio compares the amount you are willing to lose with the amount you could potentially gain.
For example:
Entry Price: $50
Stop-Loss Price: $45
Profit Target: $65
Your planned risk is:
$50 − $45 = $5 per share
Your potential reward is:
$65 − $50 = $15 per share
Your risk/reward ratio is:
1:3
That means you are risking approximately $1 for every $3 of potential reward.
That does not mean the trade has a 75% chance of succeeding.
It only describes the relationship between your planned downside and potential upside.
How to Calculate Risk/Reward
Risk/reward is based on three numbers:
Entry price
Stop-loss price
Profit target
The calculation is straightforward.
Calculate Risk Per Share
For a long position:
Risk Per Share = Entry Price − Stop-Loss Price
Example:
Entry: $100
Stop: $95
Risk Per Share: $5
Calculate Reward Per Share
For a long position:
Reward Per Share = Profit Target − Entry Price
Example:
Entry: $100
Target: $115
Reward Per Share: $15
Calculate Risk/Reward Ratio
Divide potential reward by planned risk.
Risk/Reward Ratio = Reward Per Share ÷ Risk Per Share
Using the example:
$15 ÷ $5 = 3
That produces a:
1:3 risk/reward ratio
Risk/Reward Calculation Example
Let's look at a complete trade setup.
Planned Trade
Entry Price: $80
Stop-Loss Price: $74
Profit Target: $98
Risk
$80 − $74 = $6 per share
Reward
$98 − $80 = $18 per share
Risk/Reward Ratio
$18 ÷ $6 = 3
Result:
1:3
For every $1 of planned risk, the trade has approximately $3 of potential reward based on the entry, stop, and target entered.
Again, that is a planning relationship.
It is not a prediction of what the stock will actually do.
What Is a Good Risk/Reward Ratio?
There is no single risk/reward ratio that is appropriate for every strategy.
Some investors may require at least 1:2.
Others may look for 1:3 or better.
The important part is having a standard you understand and can apply consistently.
For example:
| Risk/Reward Ratio | What It Means |
|---|---|
| 1:1 | Risk $1 to potentially make $1 |
| 1:2 | Risk $1 to potentially make $2 |
| 1:3 | Risk $1 to potentially make $3 |
| 1:4 | Risk $1 to potentially make $4 |
A higher reward relative to risk can improve the mathematics of a trading strategy.
However, a higher ratio does not automatically mean the trade is better.
The target still needs to be realistic.
A 1:10 risk/reward ratio is meaningless if the target has almost no reasonable chance of being reached.
What Is Break-Even Win Rate?
Break-even win rate estimates the percentage of winning trades needed to mathematically break even at a given average reward-to-risk ratio, before considering fees, taxes, slippage, and other real-world costs.
Examples:
| Risk/Reward | Approx. Break-Even Win Rate |
|---|---|
| 1:1 | 50% |
| 1:2 | 33.3% |
| 1:3 | 25% |
| 1:4 | 20% |
For example, with a consistent 1:3 reward-to-risk relationship, the theoretical break-even win rate is approximately 25%.
That does not mean you should expect to win 25% of your trades.
It simply shows the mathematical relationship between average wins and average losses.
Why Risk/Reward Matters
Most investors naturally focus on one question:
How much could I make?
Risk/reward forces you to ask another question first:
How much could I lose if I'm wrong?
That shift matters.
A stock can be a strong company.
The chart can look attractive.
The story can sound great.
But if the potential reward does not justify the planned risk, the setup may not fit your process.
Risk/reward helps you compare opportunities using a consistent framework instead of emotion.
Risk/Reward Does Not Predict Probability
This is one of the most important concepts to understand.
A 1:3 risk/reward ratio does not mean:
You have a 75% chance of winning
The stock is likely to hit your target
The trade is automatically attractive
Your stop will definitely protect your loss
Risk/reward only compares the distances between:
Entry → Stop
and
Entry → Target
Probability is a separate question.
A trade with a 1:5 ratio can still be a poor setup if the target is unrealistic.
A trade with a 1:2 ratio may still fit a strategy with a strong historical win rate.
Use risk/reward as one part of the decision, not the entire decision.
How Does Your Stop Loss Affect Risk/Reward?
Your stop-loss price directly affects the amount of risk per share.
Example:
Setup A
Entry: $50
Stop: $45
Target: $65
Risk: $5
Reward: $15
Risk/Reward: 1:3
Setup B
Entry: $50
Stop: $40
Target: $65
Risk: $10
Reward: $15
Risk/Reward: 1:1.5
The target did not change.
Only the stop changed.
But the risk/reward ratio changed significantly.
That is why your stop should be based on the logic of the trade, not manipulated simply to create a better ratio.
How Does the Profit Target Affect Risk/Reward?
The farther your target is from your entry, the greater the potential reward.
Example:
Entry: $100
Stop: $95
Risk: $5
Target A
Target: $110
Reward: $10
Risk/Reward: 1:2
Target B
Target: $115
Reward: $15
Risk/Reward: 1:3
Target C
Target: $120
Reward: $20
Risk/Reward: 1:4
The math improves as the target moves farther away.
But the target also needs to make sense based on the chart, resistance levels, volatility, time horizon, and your trade thesis.
Do not create unrealistic targets simply to make the ratio look better.
Should I Only Take Trades With a 1:3 Risk/Reward Ratio?
Not necessarily.
A risk/reward standard should fit your strategy.
For example, one strategy might historically produce:
Higher win rate
Smaller average reward
Another might produce:
Lower win rate
Larger average reward
Neither is automatically better.
The important question is whether your risk/reward expectations are consistent with your overall process.
Execution Signals uses risk/reward as one decision point; not as a standalone trade signal.
Neither is automatically better.
The important question is whether your risk/reward expectations are consistent with your overall process.
Execution Signals uses risk/reward as one decision point; not as a standalone trade signal.
Can a Stop Loss Guarantee My Risk?
No.
A stop-loss order does not guarantee that your position will exit at the exact stop price.
Markets can gap through your stop.
This may happen after:
Earnings reports
Major company news
Economic announcements
Market shocks
Overnight events
Low-liquidity periods
For example:
Entry: $50
Stop: $45
A company releases unexpected bad news overnight.
The stock opens at $40.
Your actual loss may be larger than the $5 per share you originally planned.
Risk/reward calculations are estimates based on the prices you enter.
They do not eliminate market risk.
What Is the Difference Between Risk/Reward and Position Sizing?
These tools answer two different questions.
Risk/Reward
Is the potential upside large enough relative to the planned downside?
Position Sizing
How many shares can I buy while staying within my risk limit?
You generally want to consider both.
For example:
Your risk/reward calculation might show an attractive 1:3 setup.
But your Position Size Calculator may show that only 75 shares fit within your maximum risk.
That is useful information.
One tool evaluates the trade setup.
The other helps determine how much capital to commit.
[Use the Position Size Calculator]
Related Investor Tools
Position Size Calculator
Calculate how many shares may fit within your planned portfolio-risk limit.
Stop-Loss Calculator
Estimate the percentage and dollar distance between your planned entry and stop.
Profit/Loss Calculator
Estimate the potential dollar and percentage gain (or loss) on a position you want.
Compound Growth Calculator
Explore how investments and ongoing contributions could grow over longer periods.
Make the Decision Before You Make the Trade
The goal of position sizing isn't to avoid every loss.
Losses are part of investing.
The goal is to understand the potential risk before you commit your capital.
Decide your risk.
Calculate your position.
Build the plan.
Then execute.
Assess. Correlate. Execute.™
Disclaimer:
Execution Signals calculators are provided for educational and informational purposes
only and do not constitute financial, investment, legal, or tax advice.
Calculator results are estimates based on the information entered. Actual investment results may differdue to price gaps, slippage, liquidity, fees, taxes, market volatility, and other factors.
Investing involves risk, including the possible loss of principal.
Make the Decision Before You Make the Trade
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Long and short positions
Multiple profit targets
Total planned dollar risk
Potential dollar profits
Automatic 2:1 target price
Automatic 3:1 target price
Automatic 4:1 target price
Break-even win rates
Side-by-side target scenarios
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Disclaimer: Execution Signals is for educational and informational purposes only and does not provide financial or investment advice. Investing involves risk, including loss of capital. Results are not guaranteed.
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