Risk-to-reward ratio
The comparison of what you stand to lose against what you stand to gain on a trade, calculated before entry.
Full explanation
The risk-to-reward ratio compares the distance from entry to stop loss with the distance from entry to take profit. Risking 20 pips to make 60 is a ratio of 1:3.
It is not a quality measure on its own. A 1:5 ratio with a target price never reaches is worse than a 1:1.5 ratio that completes regularly. Ratio and win rate must be considered together: at 1:2, roughly one winner in three keeps you level before costs.
The ratio is only honest when both numbers are chosen structurally. Moving the target further away to make the ratio look better, without a level to justify it, changes the arithmetic and nothing else.
Why traders watch it
Calculating the ratio before entry forces you to state your invalidation and your objective in advance — which is most of a trading plan in a single step.
MySmartFXSignals provides context and levels rather than trade calls, and the Position Size Calculator turns your chosen risk into a position size that fits your account.
Trading considerations
- Calculate the ratio before entering, never afterwards.
- Judge the ratio alongside your actual win rate, not in isolation.
- Never widen the target just to reach a nicer ratio.
Educational guidance only — never a trading signal or recommendation.
Related indicators
Confirmation
Observable evidence, defined in advance, that a setup is doing what you expected before you commit.
Drawdown
Drawdown is the fall from an account's peak value to its subsequent low, expressed in money or as a percentage. It measures the pain of a losing run rather than the final result. A 20% drawdown needs a 25% gain to recover, and the deeper it goes the harder recovery becomes, which is why controlling drawdown matters more than chasing returns.
Entry
The point at which you open a position — chosen in advance, with a defined trigger and invalidation.
Risk-controlled plan
A plan where the loss on every trade, and for the day as a whole, is decided before the market opens.
Stop loss
A pre-set order that closes a position once price proves the idea wrong, capping the loss.
Take profit
A pre-set order that closes a position at a chosen objective, taking the gain automatically.