#RiskRewardRatio

What is the Risk-Reward Ratio?

The Risk-Reward Ratio is a key tool used by traders to assess whether a trade is worth the risk. Simply put, it is a comparison between what you could lose versus what you could gain.

For example, if you opened a trade with a profit target of $300 and are willing to risk only $100, the risk-reward ratio would be 1:3. This means you are risking one dollar to gain three.

The higher this ratio is in favor of the reward, the more “reasonable” the trade becomes. Professional traders often look for trades with a ratio of 1:2 or higher, as they know that not every trade will be profitable, but by achieving higher returns than losses, they make a profit in the long run.

In summary:

Risk management starts with establishing a clear ratio before entering any trade. Without it, trading turns into gambling.