Risk to reward ratio


    The risk to reward ratio measures the amount of profit a trader can expect in comparison to a specified amount of risk for any given trade.

    It is an important consideration when thinking about money management.

    As an example, if the trader risks $1, but aims to make $4 profit, then the risk to reward ratio is said to be 1:4.

    It is advised that any trade taken should have a risk to reward ratio of at least 1:2.

    It is important to consider the risk to reward ratio when setting a stop loss and profit target.