The risk to reward formula
Risk = distance from entry to stop loss
Reward = distance from entry to take profit
Reward to risk = reward ÷ risk
Break-even win rate = 1 ÷ (1 + reward to risk)
Break-even win rates
| Risk : reward | Break-even win rate |
|---|---|
| 1 : 0.5 | 66.7% |
| 1 : 1 | 50.0% |
| 1 : 1.5 | 40.0% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25.0% |
| 1 : 5 | 16.7% |
Worked example
A buy on EUR/USD at 1.1000 with a stop loss at 1.0970 and a take profit at 1.1090 risks 30 pips to make 90. The ratio is 1:3, so the setup breaks even if it wins 25% of the time, before costs.
Reading the ratio honestly
Costs shift the break-even point. A scalping strategy with a 5-pip target and a 1-pip spread gives up a fifth of every win, so its real break-even win rate sits well above the figure in the table. When you evaluate an expert advisor, check its average win and average loss in the backtest report and compare them with its win rate; our guide to evaluating an EA explains how. The risk of ruin calculator then shows what those numbers mean for your account.