#RiskRewardRatio also written as Risk-to-Reward Ratio) is a trading and investing metric that compares the potential loss (risk) to the potential gain (reward) of a trade or investment.

Formula:

Risk/Reward Ratio = Potential Loss / Potential Gain

Example:

You risk losing $100 to potentially gain $300

Risk/Reward Ratio = 100 / 300 = 1:3

Key Points:

A lower ratio (like 1:3) is better—it means you’re risking less to gain more.

Traders use this to decide if a trade is worth taking.

Common targets