#RiskRewardRatio The Risk-Reward Ratio is a fundamental concept in investing and trading that compares the potential profit of a trade to the possible loss. It is calculated by dividing the amount of risk (the potential loss) by the expected reward (the potential gain). For example, a 1:3 risk-reward ratio means you risk $1 to potentially gain $3. This ratio helps traders evaluate whether a trade is worth taking. A favorable ratio can increase profitability over time, even if only a portion of trades are successful. By consistently aiming for higher rewards than risks, traders can manage losses more effectively and improve long-term outcomes. It's a key strategy for smart, disciplined investing.