What Is the Risk/Reward Ratio?
The risk/reward ratio-also known as the
risk/return ratio-marks the prospective reward
an investor can earn for every dollar they risk on
an investment. Many investors use risk/reward
ratios to compare the expected returns of an
investment with the amount of risk they must
undertake to earn these returns. A lower
risk/return ratio is often preferable as it signals
less risk for an equivalent potential gain.