#RiskRewardRatio The risk-reward ratio measures potential profit relative to potential loss in an investment or trade. It’s calculated by dividing the expected profit by the potential loss. A ratio of 2:1, for example, means the potential gain is twice the potential loss. This helps investors assess whether a trade aligns with their risk tolerance. A favorable risk-reward ratio doesn’t guarantee success but improves long-term outcomes when combined with a sound strategy. Balancing the ratio involves setting stop-loss and take-profit levels wisely. Understanding this ratio is vital for disciplined decision-making and optimizing returns while managing risk in financial markets.