Risk to reward calculator
This calculator gives the reward-to-risk ratio of a trade from your entry, stop and target, and the win rate you would need just to break even, both before and after trading costs. A 2 to 1 ratio, for example, needs the strategy to win only a third of its trades to break even before costs.
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The break-even win rate is the share of trades that must win for the strategy to neither gain nor lose, given only this stop, target and cost. It says nothing about how often a real market reaches your target.
How it works
Risk is the distance from entry to stop, and reward is the distance from entry to target. The ratio is reward divided by risk. A trade risking 2 to make 4 is 2 to 1.
The break-even win rate before costs is risk divided by the sum of risk and reward. It is the share of trades that must win for wins and losses to cancel exactly. At 2 to 1 that is 2 divided by 6, or 33.3%.
Costs change the picture, because they are paid whether the trade wins or loses. The calculator adds the cost per unit to the risk, since a stopped trade loses the stop distance plus costs, and subtracts it from the reward, since a winning trade earns the target distance minus costs. It then recomputes the break-even win rate on those net figures.
How to read the result
Compare the two break-even figures. The gap between them is the price of trading costs. A small gap means costs barely matter at this stop and target. A large one means a meaningful share of your edge has to go to fees before you make anything.
If the target does not cover the round-trip cost at all, the tool says so, because no win rate can rescue a trade whose best case loses money.
The break-even win rate is a hurdle, not a forecast. It says what your strategy has to achieve, and says nothing about how often real markets reach your target. That is something only a backtest on realistic data and then paper trading can start to answer.
The example loaded above
With an entry of 100, a stop of 98 and a target of 104, the risk is 2 and the reward is 4, a ratio of 2 to 1. Before costs the break-even win rate is 2 divided by 6, which is 33.3%. With a 0.10% round-trip cost, or 0.10 per unit, the net risk is 2.10 and the net reward is 3.90, so the break-even win rate rises to 2.10 divided by 6.00, which is 35.0%. The numbers are made up, to show the method.
What this tool does not do
- A favourable ratio is not an edge. A 3 to 1 trade that wins one time in five is a losing strategy, and a 1 to 2 trade that wins three times in four can be a winning one.
- It assumes you exit exactly at the stop or the target. Gaps, slippage and partial fills can make real exits worse.
- It treats the cost as one percentage of the entry price. Real costs vary by order type, tier and instrument.
- It describes one trade. It says nothing about the distribution of outcomes across many.
Educational only. AKQX is software only. It is not a SEBI-registered Investment Adviser or Research Analyst and gives no investment advice. This calculator does arithmetic on the numbers you enter. It does not tell you what to trade, how much to risk or whether any setup is sound. See the risk disclosure.
Questions about risk to reward calculator
What is a good risk to reward ratio?
There is no universally good ratio. What matters is the ratio together with the win rate. A higher ratio lets a strategy be profitable while losing most of its trades, but only if the target is actually reached often enough.
What does break-even win rate mean?
It is the share of trades that must win for your gains and losses to cancel out, given your stop and target. Any win rate above it is profitable before other considerations, and any below it loses money.
Why does the after-costs figure matter?
Because costs reduce every win and deepen every loss. A strategy with small targets can look comfortable before costs and need a much higher win rate once they are included.
Can I use it for short trades?
Yes. Put the stop above the entry and the target below it. The tool detects the direction from the order of your three prices.
Related
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A free account includes 10 backtests a month and 1 paper algo, so you can check a setting against history and live prices.