The Risk/Reward Ratio is a measure used by traders and investors to assess the relationship between potential risks and potential profits in a specific financial transaction. This ratio helps determine whether the trade is worth the risk or not.
How to calculate the risk-to-reward ratio:-
This ratio is calculated by dividing the distance between the entry price and the stop-loss price (risk) by the distance between the entry price and the take-profit price (reward).
Illustrative Example: If you entered a trade at a price of $100, set the stop-loss at $95, and the take-profit at $110, then: