Risk-reward ratio
The risk-reward ratio compares what a trade loses if the stop is hit with what it makes if the target is hit. Risking $100 for a $200 target is a 1:2 trade.
It is fixed before entry by the distance from entry to the stop and to the target, scaled by position size. The ratio also determines the win rate needed to break even: risk ÷ (risk + reward).
| Ratio | Breakeven win rate |
|---|---|
| 1:1 | 50% |
| 1:2 | 33.3% |
| 1:3 | 25% |
A high ratio is not an edge by itself — distant targets get hit less often, so the honest question is how the ratio and the win rate combine. That combination is what expectancy measures, and it is only observable over a sample of trades, not from one chart.
In a prop-firm challenge
Asymmetric trades let the profit target arrive without oversized risk. Risking 1% per trade at 1:2 with a 45% win rate earns about 0.35% per trade on average (0.45 × 2% − 0.55 × 1%), so a typical 8% phase-one target is reachable in roughly two dozen trades if the sample holds — while each individual loss stays far below a 4–5% daily loss limit. The arithmetic, not a hot streak, is what an evaluation is designed to test, as discussed in how long passing takes.