#RiskRewardRatio The risk-reward ratio is a key concept in investing and trading, helping you evaluate the potential profit of a trade compared to its possible loss. It’s calculated by dividing the amount you risk by the amount you expect to gain. For example, if you risk $50 to make $150, your risk-reward ratio is 1:3. This means you’re risking one dollar to potentially earn three. Successful traders often aim for ratios like 1:2 or higher to ensure long-term profitability. A good risk-reward ratio doesn’t guarantee success, but it improves your odds by ensuring your wins outweigh your losses over time. Managing this ratio helps maintain smart, disciplined trading decisions.