Orders & Risk
Risk-to-reward (R)
How much you stand to make compared with what you risk. Risking 20 pips to make 40 is 1:2. One unit of risk is called 1R.
Also called: risk-to-reward, risk reward, r multiple
In practice
You risk $100 (1R) to make $200 (2R). Even if only 4 of 10 such trades win, you net +4R (4 × 2R won − 6 × 1R lost = +2R, repeated) — profitable despite a 40% win rate. Compare that with risking $100 to make $50 (1:0.5), where you need a 67% win rate just to break even.
Why it matters for traders
Risk-to-reward is the mathematical backbone of trading survival: it lets you be wrong most of the time and still make money. Traders who fix R before entry never rely on being 'right', and they can evaluate their strategy in R terms that survive different instruments and position sizes.
Common pitfall
Beginners set ambitious reward targets to make a '1:3' ratio on paper, then take profit early because the target never gets reached, destroying the ratio they planned. The pitfall is planning one R and trading another. Only set reward targets at real structure, and if you habitually exit early, either your targets are unrealistic or your discipline is — both shrink your effective reward below what the plan promised.
Lessons that use this term
- Risk-to-reward ratio
How R multiples and win rate combine to decide whether you make money.
Related tips
Related terms
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