How to Calculate Risk-to-Reward and Break-Even Win Rate

Compare what you could lose and gain at two planned exits

Use the same entry, quantity and costs for both exits. The gross result describes the price moves. The net result shows how much remains at the target and how much the stop costs after charges.

Read the ratio in the right direction

Gross reward is the profit at the supplied target before charges. Gross risk is the positive loss at the supplied stop before charges. The net multiple divides signed target profit or loss by positive net stop loss.

Keep the orientation explicit. A 1-to-2 risk-to-reward ratio corresponds to a reward-to-risk multiple of 2×. Use charges for the full round trip once per scenario.

Compare trades with the same gross ratio

A small target may be more sensitive to fixed fees than a larger target with the same gross ratio. Compare net multiples and the break-even thresholds to see the effect of charges.

Calculate the net multiple and break-even threshold

Net reward-to-risk = signed net target outcome ÷ net stop loss. Multiply each directional price distance by share quantity. Add round-trip charges to stop loss and subtract the same charges from target profit. When the net target is positive, break-even win rate is net stop loss divided by the sum of net stop loss and net target profit.

For target frequency p, modeled average profit is p times net target profit minus (1 − p) times net stop loss. Set this expression to zero to solve the break-even rate.

Net reward-to-risk = signed net target outcome ÷ net stop loss

Work through long and short trades

For 10 long shares with entry 50, stop 48, target 54 and charges of 5, gross risk is 20 and gross reward is 40. Net risk is 25 and net reward is 35. The gross multiple is 2×, the net multiple is 1.4× and the break-even win rate is about 41.67%.

With a short entry at 50, a stop at 52 and a target at 46, the same ten shares and charges produce identical results. Opening proceeds of 500 are offset by either 520 at the stop or 460 at the target. Across twelve modeled trades, five target outcomes at 35 offset seven stop losses at 25.

1. Enter 10 shares, entry 50, stop 48, target 54 and round-trip charges of 5.
2. Compare the gross 2× and net 1.4× results.
3. Raise charges to 40, then above 40, to compare the two break-even boundary states.

Enter a single complete trade

Choose long or short, supply positive quantity and entry, then enter the stop, target and round-trip charges. Enter zero when assuming no charges. For a long, the stop is below entry and the target is above it. Reverse these relationships for a short. Changing direction clears the two exit prices.

Recognize when fees remove the break-even rate

A positive net target has a break-even win rate below 100%. A zero net target requires every exit to reach the target. If the target loses money after charges, neither exit breaks even and no combination of the two can break even.

With charges of 40, the target contributes zero. With charges of 41, the target loses 1 and the stop loses 61. Even reaching the target every time leaves a loss.

Keep quantity and charge assumptions consistent

Each scenario closes the entire position once at the supplied stop or target. The same fixed charge applies once per alternative outcome. Enter all prices and charges in the same major currency. Currency selection changes formatting.

Account for execution uncertainty

Prices, charges and shares support up to 1 trillion and up to 12 decimal places. Entry and quantity must be positive. Money is exact before display, and ratios are rounded to 24 significant digits. If a feasible break-even rate rounds to 100%, the result identifies it as strictly below 100%.

A gap can move a stop-market fill away from the trigger. A stop-limit order can fail to fill. The model represents neither a partial fill nor a distribution of outcomes.

Separate a modeled threshold from observed performance

A historical win rate alone does not establish profitability. Actual wins and losses may vary, and this threshold assumes only the two stated outcomes.

Use consistent units across markets

Use USD, GBP, CAD, AUD or INR for the United States, United Kingdom, Canada, Australia or India. Convert GBX to pounds when the charge is in GBP. Supply the costs and prices for your scenario. Venue-specific charges and local taxes are outside this model.

Choose the calculation that fits the question

Risk Per Trade compares a stop and adverse exit against an account budget. Position Sizing solves for quantity subject to cash and risk. Risk-to-reward compares a stop with a target for a supplied quantity.

Educational scope

Educational scenario analysis. Actual fills can differ. It excludes execution probabilities, partial exits, margin, borrowing, tax and FX. The break-even threshold does not predict win probability or provide personalized advice.

Frequently asked questions

Sources and review

Sources reviewed Nov 11, 2026. Consult current local rules before relying on time-sensitive information.

• Investor.gov stop order bulletin
• CIRO guidance on order types
• London Stock Exchange GBX quote example
• SEBI risk disclosure document
• ASX equities trading