Definition
If the stop-loss is 20 pips away and the take-profit is 40 pips away, the ratio is 1:2 — one unit of risk for two of reward. The ratio matters because it decides how often you need to be right: at 1:2 a strategy is profitable with as few as 40% winning trades, before costs.
A good ratio is not a target to force: moving the take-profit further away to make the numbers pretty makes the target less likely to be reached. The ratio describes a setup; it does not improve one.
Common questions
Is a higher risk-reward ratio always better?
Only together with the win rate. A 1:5 setup that wins 10% of the time loses money; a 1:1 setup that wins 60% of the time makes it. Judge the pair, never one number alone.
Related terms
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Part of the academy's trading glossary. All terms · Updated 17 October 2026