#RiskRewardRatio The Risk-Reward Ratio is a key concept in investing and trading, used to measure the potential profit of a trade relative to its possible loss. It is calculated by dividing the expected risk (loss) by the expected reward (gain). For example, a ratio of 1:3 means you risk $1 to potentially gain $3. Traders use this ratio to evaluate whether a trade is worth taking. A favorable risk-reward ratio helps improve profitability over time, even if not all trades are successful. Maintaining discipline and sticking to a planned ratio is essential for effective risk management and long-term success in trading.