#RiskRewardRatio The Risk-Reward Ratio is a key concept in trading and investing, used to compare the potential profit of a trade to its potential loss. It is calculated by dividing the expected reward (profit) by the risk (loss). For example, a 1:3 ratio means risking $1 to potentially earn $3. A favorable risk-reward ratio helps traders make smart decisions by ensuring the reward outweighs the risk. This concept encourages disciplined trading and effective money management. Successful traders often aim for ratios like 1:2 or higher, improving their chances of long-term profitability even if not all trades are winners.