Risk–Reward Ratio Calculator: method, checked example and practical limits
Compare price distance to a stop with price distance to a target. The reward-to-risk multiple describes price distances and does not estimate the likelihood that either level will be reached.
Inputs used by this calculator
Risk–Reward Ratio Calculator uses the fields below. The starting values reproduce the page example; replace them with values from the same units and time period before using the result.
| Input | Starting example | Accepted value | How it is used |
|---|---|---|---|
| Position direction | Long | Long · Short | Supplies the position direction quantity used by the published equation or result breakdown. |
| Entry price | 100 | 0.000001 to 1000000000000000 | Supplies the entry price quantity used by the published equation or result breakdown. |
| Stop price | 95 | 0 to 1000000000000000 | Selects the unit or conversion path used by Risk–Reward Ratio Calculator. |
| Target price | 112 | 0 to 1000000000000000 | Supplies the target price quantity used by the published equation or result breakdown. |
Inputs and measurement conventions
The quantities used on this page are Position direction, Entry price, Stop price, Target price. Start with values for the same situation and read the units attached to each field. The field reference below shows supported choices and numerical limits.
Direction matters: a valid long stop is below entry and a target above it, while a short position reverses those relationships.
Method and equation
Measure adverse distance from entry to stop and favorable distance from entry to target for the selected long or short direction.
Risk–Reward Ratio Calculator uses the following stated relationship: reward-to-risk = favorable target distance ÷ adverse stop distance. Its assumptions determine which question the answer can resolve.
reward-to-risk = favorable target distance ÷ adverse stop distanceWorked calculation with the starting values
Position direction: Long; Entry price: 100; Stop price: 95; Target price: 112. These starting values give 2.4 reward units per risk unit. The calculation breakdown is Price risk: 5; Price reward: 12; Break-even win rate: 29.41176471; Direction: long.
A long entry at $100, stop at $95 and target at $112 has 12 reward for 5 risk, or 2.4:1.
Reading the answer
The reward-to-risk multiple describes price distances and does not estimate the likelihood that either level will be reached.
Price risk: 5; Price reward: 12; Break-even win rate: 29.41176471; Direction: long. These intermediate quantities make the stated Risk–Reward Ratio Calculator model inspectable; they should be read together with the main answer rather than treated as independent guarantees.
Common errors and model boundaries
Direction matters: a valid long stop is below entry and a target above it, while a short position reverses those relationships.
The ratio does not estimate probability, slippage, gaps, fees or whether the target and stop are technically valid.
Independent verification and next decision
No. Win probability, execution costs and the distribution of outcomes are needed alongside distance ratios.
For the Risk–Reward Ratio Calculator method, compare reward-to-risk = favorable target distance ÷ adverse stop distance with the starting inputs and the calculation table. The linked Investor.gov: investing basics and FINRA: investing references identify the relevant definitions, conventions or domain limitations. Retain intermediate precision when comparing a manually worked answer.
Risk–Reward Ratio Calculator worked-example ledger
| Quantity | Example value | Role |
|---|---|---|
| Position direction | Long | Entered assumption |
| Entry price | 100 | Entered assumption |
| Stop price | 95 | Entered assumption |
| Target price | 112 | Entered assumption |
| Main answer | 2.4 reward units per risk unit | Calculated from the starting inputs |
| Price risk | 5 | Intermediate or contextual output |
| Price reward | 12 | Intermediate or contextual output |
| Break-even win rate | 29.41176471 | Intermediate or contextual output |
| Direction | long | Intermediate or contextual output |
Frequently asked questions
Does a high multiple establish a profitable strategy?
No. Win probability, execution costs and the distribution of outcomes are needed alongside distance ratios.
Which relationship does the Risk–Reward Ratio Calculator use?
Measure adverse distance from entry to stop and favorable distance from entry to target for the selected long or short direction. The displayed relationship is reward-to-risk = favorable target distance ÷ adverse stop distance.
What do the starting values produce in the Risk–Reward Ratio Calculator?
Position direction: Long; Entry price: 100; Stop price: 95; Target price: 112. These starting values give 2.4 reward units per risk unit. The calculation breakdown is Price risk: 5; Price reward: 12; Break-even win rate: 29.41176471; Direction: long.
How should I interpret this Risk–Reward Ratio Calculator answer?
The reward-to-risk multiple describes price distances and does not estimate the likelihood that either level will be reached.
Which input mistake most affects the Risk–Reward Ratio Calculator?
Direction matters: a valid long stop is below entry and a target above it, while a short position reverses those relationships.
What is outside this Risk–Reward Ratio Calculator model?
The ratio does not estimate probability, slippage, gaps, fees or whether the target and stop are technically valid.
What to keep in mind
The ratio does not estimate probability, slippage, gaps, fees or whether the target and stop are technically valid.
Results are rounded for display in US format, with money in dollars and cents; CSV exports keep full calculation precision. This is a calculation summary, not an official certificate.