Calculator Panel
Calculation Ready
Enter your values above and click Calculate.
What This Calculator Does
This calculator calculates the ratio of potential trade risk relative to trade reward, helping you identify highly asymmetrical setups.
How to Use This Calculator
Input buy price, stop price, and target price. Click Calculate to see your risk/reward ratio, profit target premium, and stop-loss buffer.
How the Calculation Works
The underlying math engine processes your inputs using exact formulas. This systematic approach ensures professional, institutional-grade calculation precision:
Mathematical Formula
Formula Legend:
- · Target Price = Your target exit selling price for a profit.
- · Entry Price = Buying price per share.
- · Stop Price = Exit stop-loss price per share.
Practical Example
Suppose you buy a stock at $100.00, place a stop-loss at $95.00, and set a profit target at $115.00:
Step-by-Step Mathematical Walkthrough:
- 1 Calculate potential reward per share: $115.00 target - $100.00 entry = $15.00 reward.
- 2 Calculate potential risk per share: $100.00 entry - $95.00 stop = $5.00 risk.
- 3 Divide reward by risk: $15.00 / $5.00 = 3.00.
- 4 Your Risk/Reward Ratio is 1:3.00, meaning you stand to gain $3.00 for every $1.00 risked.
Important Assumptions & Notes
- Both targets and stop prices represent realistic price expectations.
- Commissions are ignored in the base ratio calculation.
Common Mistakes or Considerations
- Accepting trades with low risk/reward ratios (e.g. less than 1:2), requiring high win rates to break even.
Frequently Asked Questions
What is a good risk-reward ratio?
A ratio of 1:2 or higher (risking $1 to make $2 or more) is generally considered healthy, as it allows you to remain profitable even with a win rate below 50%.
How is the risk-reward ratio calculated?
By dividing your potential profit (Target Price minus Entry Price) by your potential loss (Entry Price minus Stop-Loss Price).
Why is a 1:2 or 1:3 risk-reward ratio popular among traders?
With a 1:2 ratio, you only need to win 34% of your trades to break even. With a 1:3 ratio, you only need to win 26% to remain profitable.
Can I have a high win rate with a low risk-reward ratio?
Yes. Scalpers and market makers often use a low risk-reward ratio (e.g., risking $2 to make $1) but maintain very high win rates (e.g., 80%).
How do entry, stop-loss, and target prices define this ratio?
The difference between entry and stop-loss defines your risk per share, while the difference between entry and target defines your reward per share.