What does a risk/reward ratio show?
A risk/reward calculator compares the modeled loss if a position exits at its stop with the modeled gain if it exits at its target. This version uses entry, stop, target, direction, quantity, and round-trip fees. A 1:2 ratio means modeled reward is twice modeled risk after fees.
For a long position, the stop must be below entry and the target above entry. For a short position, the stop must be above entry and the target below entry. Price distances are multiplied by quantity. Round-trip fees increase modeled loss and reduce modeled gain. If fees equal or exceed the price-based target gain, there is no positive net reward in this scenario and a ratio is not shown.
For example, suppose a long scenario enters at 100, uses a stop at 95 and a target at 110, and has a quantity of 10 with no fees. The modeled loss is 50 currency units and the modeled gain is 100, producing a 1:2 risk-to-reward ratio. These hypothetical inputs illustrate arithmetic, not a quote or trade recommendation.
The break-even win rate shown is the proportion of wins that would offset losses if every outcome were exactly the entered net reward or net risk, with no other costs. It is calculated as risk divided by the sum of risk and reward. It is not a probability estimate or evidence of an advantage. Actual entries and exits can differ from planned prices.
This model assumes one entry and a full exit at either the stop or target. It excludes partial fills, financing, borrow costs, funding payments, taxes, dividends, market impact, and gaps. A stop price is an assumption, not a guaranteed execution price. This is educational arithmetic, not financial or trading advice.
Source and date: The SEC explains that a stop order becomes a market order when triggered and can execute at a price different from the stop. See Investor.gov, Stop, Stop-Limit, and Trailing Stop Orders, accessed 2026-11-03. This supports the execution caveat; the calculator uses only entered prices.
Frequently asked questions
How is the ratio written?
The calculator shows risk to reward as 1 to the modeled reward divided by modeled risk. A 1:2 ratio means modeled reward is twice modeled risk.
What does the break-even win rate mean?
It is the win share needed to offset the entered fixed outcomes if each matches the model exactly. It does not predict a win rate.
Are fees included?
Yes. Enter total fees for opening and closing. Fees increase the modeled loss and reduce modeled reward.
Why might no ratio appear?
If entered fees consume the entire price-based target gain, modeled net reward is zero or negative, so a positive risk-to-reward ratio does not apply.