Learn how to judge trade quality by comparing potential reward against risk.

Risk/reward is one of the fastest filters you can apply to any trade. It converts a setup into a single ratio that tells you whether the upside justifies the downside. When used consistently, it prevents impulsive entries and keeps you focused on high-quality opportunities instead of random trades.

What the ratio actually measures

Risk is the distance between your entry and your stop loss. Reward is the distance between entry and your target. If the reward is twice the risk, the ratio is 2.0. This number tells you the payoff profile of the trade before you even execute it.

Risk/reward is not a win-rate prediction. It is a quality check. A great setup can still fail, but a weak ratio often guarantees poor long-term results.

Why traders rely on it

The ratio helps you answer two critical questions:

• How much do I lose if I am wrong?
• How much do I gain if I am right?

If your average risk/reward is 2.0, you can be wrong more than half the time and still break even. That margin of safety is essential, especially in fast-moving markets like crypto where slippage and volatility are common.

How to calculate risk/reward

Use this simple process: 1. Choose a logical entry based on your strategy. 2. Place a stop where the trade idea is invalidated. 3. Set a target using structure, trend, or measured moves. 4. Divide reward by risk.

TradeOrbit calculates this instantly and shows both the raw ratio and a fee-adjusted ratio so you can see what is realistic after costs.

How fees and slippage change the picture

Fees reduce reward more than they reduce risk. On short-term trades, even a 0.1% fee on entry and exit can reduce your effective ratio. Slippage can do the same if you enter or exit during volatile moves. That is why the calculator includes fee inputs and shows an effective ratio so you can plan with realistic numbers.

What is a good ratio?

There is no universal number, but many traders target 1.5 to 3.0 depending on strategy:

• Day trades often require higher ratios to overcome fees.
• Swing trades can work with slightly lower ratios if the win rate is strong.
• Breakout trades may require higher ratios due to volatility.

The key is consistency. A repeatable ratio combined with a solid edge is more powerful than chasing a perfect number.

Common mistakes to avoid

Watch for these issues:

• Moving the stop closer just to improve the ratio.
• Setting unrealistic targets that rarely get hit.
• Ignoring fees or using a fee rate that is too low.
• Changing targets after entry without a plan.

A good ratio only matters if your stop and target make sense within your strategy.

Example scenario

Entry at 42,000, stop at 40,000, target at 46,000:

• Risk = 2,000
• Reward = 4,000
• Ratio = 2.0

If you pay 0.1% fees on entry and exit, the effective reward drops slightly. You might need a slightly higher target to keep the ratio above 2.0. The calculator helps you see that instantly.

Use risk/reward with position sizing

Risk/reward alone does not protect your account. It should be paired with position sizing to cap your loss in dollars. The workflow is simple:

• Define stop and target.
• Check the ratio.
• Use position sizing to calculate quantity.
• Confirm that the potential loss matches your risk budget.

This keeps your account stable even during losing streaks.

Key takeaways

• Risk/reward compares potential gain to potential loss.
• Higher ratios give you more room for error.
• Fees and slippage reduce the effective ratio.
• The ratio must align with a realistic stop and target.

Use the calculator to test multiple targets in seconds, then lock in the ratio that fits your strategy and risk tolerance.