The formula
Risk-reward = distance to stop-loss : distance to take-profit
Break-even win rate = 1 ÷ (1 + reward/risk)
Example
You buy GBP/USD at 1.2700 with a stop at 1.2670 (30 pips) and a target at 1.2760 (60 pips). Risk-reward is 1:2. If you risk £20, a win makes £40.
Break-even win rates
| Risk-reward | Win rate needed to break even (before costs) |
|---|---|
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33% |
| 1:3 | 25% |
Costs (spreads and commission) raise these numbers slightly, especially for short-term trades with small targets.
Win rate and ratio work together
A strategy with a 40% win rate and 1:2 risk-reward is profitable before costs; a strategy with a 70% win rate and 1:0.3 is not. Track both in your journal.
Practical tips
- Place stops where the trade idea is invalidated, not where the ratio looks good.
- Set targets at realistic levels — previous highs, lows or round numbers.
- Skip trades where the realistic target doesn't justify the risk.
- Don't move your stop further away once in a trade.
Frequently asked questions
What is a good risk-reward ratio?
Many traders aim for at least 1:2 (risking 1 to make 2). The right ratio depends on your strategy's win rate.
Should I always use the same target?
Not necessarily. Targets should be based on realistic levels on the chart, not a fixed multiple that the market is unlikely to reach.
CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage. Most retail investor accounts lose money when trading these products. You should consider whether you understand how they work and whether you can afford to take the high risk of losing your money. Content is general information, not financial or tax advice.