Risk Reward Calculator

What is a Risk Reward Calculator?

A Risk Reward Calculator is a trading tool that helps traders compare the potential loss of a trade with its potential profit. By entering the entry price, stop loss and target price, you can calculate the risk-reward ratio before taking a trade.

Understanding risk and reward can help traders plan their trades and determine how much they could potentially lose or gain based on a predefined trading setup.

How to Calculate Risk Reward Ratio?

The risk-reward ratio compares the amount you are willing to risk with the potential profit you are targeting.

For example, suppose you enter a stock at ₹100, keep your stop loss at ₹95 and set a target of ₹115.

In this example, you are risking ₹1 for a potential reward of ₹3.

How Does the Risk Reward Calculator Work?

1. Enter Your Entry Price

Enter the price at which you plan to buy or enter the trade.

2. Enter Your Stop Loss

Enter the stop-loss price. The calculator uses the difference between your entry and stop-loss price to determine your potential risk.

3. Enter Your Target Price

Enter your target price to calculate the potential reward from the trade.

4. Enter Quantity

Enter the number of shares or units you intend to trade. This allows the calculator to estimate the total potential loss and profit.

What Does a 1:2 or 1:3 Risk Reward Ratio Mean?

A 1:2 risk-reward ratio means that for every ₹1 of potential loss, the trade has a potential reward of ₹2 based on the selected entry, stop-loss and target levels.

A 1:3 ratio means that for every ₹1 of risk, the potential reward is ₹3.

• 1:1: ₹1 potential risk for ₹1 potential reward.
• 1:2: ₹1 potential risk for ₹2 potential reward.
• 1:3: ₹1 potential risk for ₹3 potential reward.
• 1:4: ₹1 potential risk for ₹4 potential reward.

Risk Reward Ratio and Break-Even Win Rate

The risk-reward ratio can also be used to calculate the theoretical break-even win rate before considering brokerage, taxes, slippage and other trading costs.

For a 1:2 risk-reward ratio, the theoretical break-even win rate is:

This does not mean that a trader will achieve a particular return. Actual trading results can be affected by transaction costs, slippage, position sizing, execution and market conditions.

Why is Risk Reward Important in Trading?

Risk-reward analysis is commonly used as part of trade planning. It allows traders to define a potential loss and potential target before entering a position.

• Helps define a stop-loss level.
• Helps estimate potential profit and loss.
• Helps compare different trade setups.
• Helps understand the relationship between risk and potential reward.
• Can be combined with position sizing and a trading plan.

Risk Reward Calculator Example

Assume you want to buy 100 shares at ₹500. Your stop loss is ₹480 and your target is ₹560.

The calculator performs these calculations automatically when you enter your trade details.

Important Note

The Risk Reward Calculator provides mathematical estimates based on the prices and quantity entered by the user. It does not predict whether a trade will be profitable.

Actual trading outcomes can differ because of market volatility, slippage, brokerage, taxes, liquidity, execution price and other trading costs. This calculator is for educational and informational purposes only and should not be considered investment advice.