What is Risk : Reward Ratio?

How much a trade can pay versus what it risks — at 1:3, one win covers three losses.

The risk:reward ratio compares the distance from entry to stop loss (the risk) with the distance from entry to target (the reward). Risking 50 pips to target 150 pips is a 1:3 trade. The ratio determines the win rate a strategy needs to survive: at 1:1 you must win over half your trades, at 1:2 just over a third, at 1:3 only a quarter. This is why professionals can be wrong most of the time and still compound.

The ratio is only honest when both ends are structural. Stops belong behind the level that invalidates the idea; targets belong at objectives price genuinely reaches for, such as liquidity pools or opposing zones. Inflating the ratio by shrinking the stop or stretching the target creates beautiful numbers and terrible results. Most professional desks, ours included, decline setups offering less than 1:2.