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Risk

Risk-reward ratio — definition & meaning

How much you stand to gain compared with what you risk on a trade.

The risk-reward ratio compares the money you risk on a trade to the profit you are targeting. Risking £50 to make £150 is a 1:3 ratio.

A favourable ratio means you can be right less than half the time and still make money overall. Planning risk and reward before you enter is a cornerstone of disciplined trading.

The information on Trding.io is for general information only and is not investment advice. Trading involves a real risk of losing money, and most retail traders lose. Never trade money you cannot afford to lose.

Related terms

Stop-loss
A preset order that closes a losing trade to cap your loss.
Take-profit
A preset order that closes a winning trade at your target price.
Position sizing
Choosing how large a trade to place based on your risk per trade.
Win rate
The percentage of your trades that end in profit.
Leverage
Borrowed exposure that lets you control a large position with a small deposit.
Margin
The deposit a broker holds to keep a leveraged position open.

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