Trading Basics
R:R ratio explained
Risk/Reward ratio
Quick definition: R:R is the ratio between the amount you could lose (the distance to your stop loss) and the amount you could gain (the distance to your take profit) on a trade.
R:R = 1:3 means risking 1 dollar for an expected gain of 3 dollars.
With an R:R of 1:2, you only need to win more than 1/3 of your trades to break even (before fees). That's why professional traders prioritize R:R over win rate.
Avoid trades with an R:R below 1:1.5 unless you have a clear edge.
💡 Example
📊 Calculate position size and R:R →Stop loss 2% from entry, take profit 6% away: R:R = 1:3. Lose 2 trades (−4%), win 1 trade (+6%) and you are still up 2%.
Related terms
Stop lossA stop loss is an order that automatically closes your position when the price moves against you to a level yo…Take profitA take profit is an order that automatically closes your position when the price hits a profit level you set i…LeverageLeverage means borrowing extra capital from the exchange to open a position larger than the money you have. It…PnL (profit and loss)PnL is the profit or loss of a position or account. Unrealized PnL is the estimated profit or loss while a pos…
Educational content for reference only, not financial advice. Leveraged trading carries the risk of losing your entire capital.