What is Risk/Reward Ratio (R:R)?
The ratio between the potential loss on a trade and the potential profit — e.g. 1:2 means risking $1 to make $2.
The risk/reward ratio (R:R or RR) tells you how much you expect to gain for every dollar you risk on a trade. It's the foundation of professional position sizing.
Formula:
R:R = Distance to stop-loss / Distance to take-profit
Example: You buy BTC at $50,000.
Why it matters:
With a 1:2 R:R, you only need to win 33% of trades to break even. With 1:3, you only need 25%.
| R:R | Breakeven Win Rate |
|---|---|
| 1:1 | 50% |
| 1:2 | 33% |
| 1:3 | 25% |
| 1:4 | 20% |
Minimum viable R:R:
Most professional traders use at least 1:2. Below 1:1.5, commissions and spread will eat your edge. Targeting 1:3 or better gives you a significant buffer even with a modest win rate.