#RiskRewardRatio

The risk/reward ratio is a fundamental metric in trading and investing, comparing potential losses (risk) to potential gains (reward). It's calculated by dividing the expected loss by the anticipated profit. For example, if an investor risks $100 to potentially gain $300, the risk/reward ratio is 1:3. A lower ratio indicates a more favorable trade, as the potential reward outweighs the risk. Traders often aim for ratios where the reward is at least twice the risk, such as 1:2 or lower, to ensure that potential profits justify the risks taken.