#RiskRewardRatio

The Risk-Reward Ratio compares the potential profit of a trade with its potential loss. It is calculated by dividing the risk (the difference between the entry price and the stop-loss) by the reward (the difference between the target price and the entry price). A ratio less than 1 indicates that the potential profit is greater than the risk, which is generally considered more favorable. For example, a ratio of 1:2 means that for every euro you risk, you aim to earn two. It is a key tool in risk management to assess whether a trade justifies the potential loss.