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Investment
Risk-Reward Ratio
The potential profit of a trade compared to the potential loss — a key part of trading discipline.
Professional traders aim for at least 1:2 or 1:3 risk-reward. It allows you to be wrong more often than right and still make money. Combined with good win rate and position sizing, it is one of the foundations of long-term trading success.
It's asking 'how much can I win versus how much can I lose?' before every trade.
Real world: You risk £100 to make £300. Your risk-reward ratio is 1:3. Even if you are right only 40% of the time you can still be very profitable over many trades.
💡 A good risk-reward ratio is how smart traders win even when they lose more trades than they win.