Okay, imagine you're playing a game where you can win points, but you might also lose some.
The risk-reward ratio is like figuring out if the points you could win are way more than the points you might lose if you don't do so well.
Think of it like this:
* Risk: The number of points you might lose if you make a mistake.
* Reward: The number of points you could win if you play well.
You want to play games where you can win a LOT more points than you might lose, right? That's a good risk-reward!
For example:
* Good Risk-Reward: You might risk losing 1 point, but you could win 3 points! That's a good deal.
* Not-So-Good Risk-Reward: You might risk losing 3 points to only win 1 point. That doesn't sound as fun!
So, people who trade money try to make "trades" (like buying or selling little pieces of companies) where they could make more money than they might lose. They use the risk-reward ratio to help them decide if a trade is like a good game where the wins are bigger than the losses!
It's all about trying to make more money in the long run by taking smart chances! 😊