Trading glossary
Risk-Reward Ratio
The risk-reward ratio compares the amount you risk on a trade to the amount you stand to gain, expressed as a ratio such as 1:2. A 1:2 ratio means you risk one unit to make two, which allows you to be profitable with a win rate below 50%. The ratio is set before entry by the placement of your stop loss and take profit, and it works together with win rate to determine expectancy. Prop firm rules often reference risk limits, and a journal helps you check that you actually take trades with the ratio you planned. Traders Vault records your intended risk-reward against what happened.
What is Risk-Reward Ratio in trading?
The risk-reward ratio compares the amount you risk on a trade to the amount you stand to gain, expressed as a ratio such as 1:2. A 1:2 ratio means you risk one unit to make two, which allows you to be profitable with a win rate below 50%. The ratio is set before entry by the placement of your stop loss and take profit, and it works together with win rate to determine expectancy. Prop firm rules often reference risk limits, and a journal helps you check that you actually take trades with the ratio you planned. Traders Vault records your intended risk-reward against what happened.