#RiskRewardRatio

The risk-reward ratio is a fundamental concept used in trading and investing to compare the potential profit of a trade or investment to its potential loss. It helps investors and traders assess whether the potential gains are worth the risk they are taking.

Formula:

The risk-reward ratio is calculated as follows:

Risk-Reward Ratio = Potential Risk (Stop-Loss Price - Entry Price) / Potential Reward (Target Price - Entry Price)

Alternatively, it can be expressed as:

Risk-Reward Ratio = Amount at Risk / Potential Profit

The ratio is typically expressed in the format of Risk : Reward. For example, a risk-reward ratio of 1:3 means you are risking $1 to potentially make $3.