Risk/reward ratio: Reading a Risk-to-Reward Ratio in the Right Direction
This tool divides potential loss by potential gain. A result near 0.33 corresponds to about one unit at risk for three units of potential reward.
Use the Risk/reward ratio Calculator to enter your own figures and compare the result with the worked example below.
Risk/reward ratio formula
Risk/reward = Potential loss ÷ Potential gain
Worked example
| Item | Example value |
|---|---|
| Potential loss | 100 USD |
| Potential gain | 300 USD |
| Risk/reward ratio | 0.333333 |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Some sources quote reward divided by risk instead. Neither convention includes the probability of winning, so the ratio alone cannot establish profitability.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Leveraged investing risks. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.