What Is a Good Risk-to-Reward Ratio in Forex?

What the risk-to-reward ratio means

The risk-to-reward ratio compares how much you stand to lose on a trade against how much you aim to make. Write it as 1:2 and it means you are risking one unit to make two. If your stop loss is 25 pips away and your target is 50 pips away, that is a 1:2 trade, whatever the pair or the timeframe.

It is a measure of the shape of a single trade, decided before you enter. That last part matters. The ratio is only honest when the stop and the target are both set in advance. A ratio you work out after the trade closed, by drawing the lines where you wish you had put them, tells you nothing useful.

How to calculate it, in rand

The formula is one division. Take the distance from your entry to your target, and divide it by the distance from your entry to your stop loss.

The rand version works identically and is the one that matters for your account. Say you are trading a R20,000 account and risking 1%, so R200 is on the line. If the trade is structured so the target would bank R400, the ratio is 1:2. If the target only allows R300, it is 1:1.5. Thinking in rand keeps the ratio tied to the size of your account rather than an abstract pip count, and it is how you keep risk steady across pairs with very different pip values.

Doing this by hand on every trade gets old fast. Our free risk-to-reward calculator works it out instantly, and the position size calculator turns your chosen risk percentage into the right lot size in rand. If lot sizes still feel fuzzy, the guide to forex lot sizes for ZAR accounts breaks them down.

What counts as a good ratio

Here is the honest answer that most articles dodge: there is no single good ratio. The common targets of 1:2 or 1:3 are reasonable starting points, not laws. A ratio is good or bad only in combination with how often your trades actually win. This is the part that turns the ratio from a slogan into something useful.

A scalper winning 70% of trades can run a 1:1 ratio and make money. A trend trader winning 35% of trades can run 1:3 and make more. Both are right for their style. What gets traders into trouble is borrowing a ratio from a different style than their own, then wondering why a rule that works for someone else is bleeding their account.

Why win rate changes the answer

Win rate and risk-to-reward are two halves of the same coin, and you cannot judge one without the other. A high win rate with a poor ratio can still lose money, and a low win rate with a strong ratio can win handsomely. The metric that ties them together is expectancy, which tells you what an average trade is worth once both numbers are accounted for.

The practical consequence is that you should not pick a target ratio in a vacuum. You pick it to match the win rate your setup can sustain. Push the target too far for the sake of a bigger ratio and the target stops getting hit, the win rate sags, and the prettier ratio buys you a worse result. The two move against each other, and the job is to find the balance your own trades support.

The break-even table to memorise

For any ratio there is a win rate below which you lose money and above which you make it. This table shows the break-even win rate for common ratios, before costs. Clear your costs and you start earning above these lines.

Read it the right way round. The table does not say a 1:5 ratio is best because it needs the fewest winners. It says that if your real win rate at 1:5 drops below 17%, that beautiful ratio loses money. The ratio is only as good as the win rate you can actually hold at it.

Spreads, the rand, and your real ratio

The ratio on your chart and the ratio that lands in your account are not the same number, and the gap is your trading costs. Every trade pays the spread, and on some pairs a commission too. That cost comes out of the reward and adds to the risk, so a chart-perfect 1:2 is a little worse than 1:2 once you have paid to get in and out.

For South African traders this matters most on USD/ZAR, which usually carries a wider spread than majors like EUR/USD. On a short-term USD/ZAR trade, a spread that is a meaningful slice of your stop distance can quietly turn a 1:2 into something closer to 1:1.7. None of this makes the pair untradeable, but it does mean the honest ratio is the one calculated in rand, after costs, on the pair you are actually trading. The USD/ZAR trading guide covers real spread behaviour across the South African day.

The smaller your stop and target, the more the spread distorts the ratio, which is one reason very-short-term trading is harder than it looks. Wider trades wear the cost more lightly.

Journalling your risk-to-reward

A target ratio is a plan. Your journal tells you what you actually achieved, and the two are usually different. Traders routinely plan 1:2 and realise 1:1.3, because they take profit early out of fear or move stops in panic. You only find that gap by logging both the planned and the achieved ratio on every trade.

Three fields make the ratio measurable rather than aspirational:

• Planned ratio at entry. What you intended when you took the trade.
• Achieved ratio at exit. What you actually got. The gap between the two is a behaviour, not a market event.
• Win rate by setup. Tracked over enough trades, this is the number that tells you whether your target ratio is realistic for that setup.

For the wider set of fields worth logging, see what to track in a forex trading journal, and read the numbers each week with the 30-minute weekly trading review. That is where a target ratio slowly becomes a real one.