# Risk-Reward Ratio

*Trading & Technical Analysis — Finicade finance glossary*

The risk-reward ratio compares the distance to your stop with the distance to your target. A 1:3 ratio means you can be right a quarter of the time and still break even, which is why it's the standard defence for strategies with low win rates. It's only meaningful if the target is realistic — a favourable ratio built on a target price nothing reaches is arithmetic, not an edge.

**Formula:** `Risk-reward = (Target − Entry) ÷ (Entry − Stop)`

**Also known as:** risk reward, R multiple, reward to risk

**Related terms:** [Position Sizing](https://finicade.com/glossary/position-sizing), [Expectancy](https://finicade.com/glossary/expectancy), [Trailing Stop](https://finicade.com/glossary/trailing-stop), [Stop-Limit Order](https://finicade.com/glossary/stop-limit-order), [Swing Trading](https://finicade.com/glossary/swing-trading)

Source: https://finicade.com/glossary/risk-reward-ratio