Risk-Reward Ratio

What does a 1:2 risk-reward ratio mean?

A risk-reward ratio compares the loss planned at your stop loss with the gain planned at your target. A 1:2 risk-reward ratio means the plan risks $1 for every $2 of planned reward.

This describes the trade plan. It does not promise that the target will be reached or that the final loss will stop at the exact planned amount.

Fictional XAUUSD London-session example

Imagine you are planning an XAUUSD breakout during the London session. Your chosen entry, stop and position size produce these order-ticket estimates:

• Planned loss at the stop: $50.
• Planned gain at the target: $100.

$100 planned reward ÷ $50 planned risk = 2

The plan is therefore written as 1:2 risk to reward. The $50 and $100 figures are fictional examples, not recommended amounts. Some platforms label ratios differently, so check which convention your platform uses.

Planned R:R is not the realised result

Before entry, you only have a plan. The realised result can change because of spread, commission, slippage, a price gap, a partial exit, an early close, or a changed stop or target.

For example, a trade planned at 1:2 may close early at less than 2R, or a stop may fill beyond the expected price. Write down both the original plan and the final result instead of treating them as the same number.

How does R:R connect with win rate?

The simplified breakeven win rate can help you understand the arithmetic before trading costs:

• 1:1: 50% breakeven win rate before costs.
• 1:2: about 33.3% before costs.
• 1:3: 25% before costs.

These figures do not predict profit. Real results also depend on costs, fills, losses, partial exits, the win rate, and the expectancy across a useful sample of comparable trades. No single ratio is a universal sweet spot.

Check the full risk plan

A ratio is one planning input. It does not replace your position-size calculation, daily loss control, open-exposure check, or the current rules for your exact prop-firm program. The forex and prop-firm risk-management guide explains how these parts fit together.