#RiskRewardRatio The risk-reward ratio is a fundamental concept in investing and trading, used to evaluate the potential return of an investment relative to its risk. It’s calculated by dividing the amount you stand to lose (risk) by the amount you could gain (reward). For example, a 1:3 risk-reward ratio means you risk $1 to potentially earn $3. This helps traders make smarter decisions by focusing on opportunities that offer higher rewards for lower risks. A good risk-reward ratio, combined with consistent strategy and discipline, can lead to long-term profitability even with modest win rates. Understanding and applying this ratio encourages better trade selection, improved money management, and overall risk control—essential for achieving success in both short-term and long-term investing.