Risk-to-reward ratio

A comparison between a defined potential loss distance and a defined potential gain distance.

For a long example with entry 100, stop 98 and target 104, the distances are 2 and 4, commonly written as 1:2 before fees and execution effects.

The ratio describes the geometry of chosen prices; it does not state how likely either price is to be reached.

A favourable ratio is not expected profit. Probability, spread, fees, slippage and position size remain separate.

Also called: what is risk-to-reward ratio, risk-to-reward ratio meaning

A definition, not financial advice. Trading carries a risk of loss.