Table of Contents
What Is Risk-Reward Ratio?
Risk-reward ratio compares the potential loss on a trade to the potential profit. A 1:2 risk-reward means you risk Rs 1,000 to potentially make Rs 2,000. This single metric determines whether your trading strategy can be profitable over hundreds of trades.
With a 1:2 ratio, you only need to win 34% of your trades to break even. With a 1:3 ratio, you need just 25%. This is why professional traders obsess over risk-reward before entering any position — it matters more than win rate.
Calculating Risk-Reward
Risk = Entry Price - Stop Loss (for long trades)
Reward = Take Profit - Entry Price
Risk-Reward Ratio = Reward / Risk
Example: You buy EUR/USD at 1.0850 with a stop loss at 1.0820 and take profit at 1.0910. Risk = 30 pips. Reward = 60 pips. Ratio = 60/30 = 1:2.
Always calculate this before entering a trade. If the ratio is below 1:1.5, skip the trade unless your strategy has a proven win rate above 60%.
| R:R Ratio | Win Rate Needed | Suitable For |
|---|---|---|
| 1:1 | Above 50% | Scalping |
| 1:2 | Above 34% | Day/Swing Trading |
| 1:3 | Above 25% | Swing Trading |
| 1:5 | Above 17% | Position Trading |
Position Sizing Formula
Position Size = (Account Risk) / (Stop Loss in Pips x Pip Value)
Account Risk = Account Balance x Risk Percentage. If your account is $1,000 and you risk 2%, your account risk is $20.
Pip Value depends on lot size and pair. For EUR/USD, a standard lot (100,000 units) has a pip value of $10. A mini lot is $1. A micro lot is $0.10.
Example: $1,000 account, 2% risk ($20), 40-pip stop loss. Position Size = $20 / (40 x $0.10) = 5 micro lots (0.05 lots).
Understanding Lot Sizes
Standard lot: 100,000 units. 1 pip = $10 for USD pairs. Requires significant margin. Not recommended for accounts under $10,000.
Mini lot: 10,000 units. 1 pip = $1. Good for accounts of $1,000-$10,000.
Micro lot: 1,000 units. 1 pip = $0.10. Ideal for accounts under $1,000 or Rs 84,000. Both Exness and XM support micro lots.
Practical Examples for INR Accounts
Scenario 1: Rs 50,000 account on Exness. Risk 1% = Rs 500. Trading EUR/USD with a 30-pip stop. At current rates, Rs 500 = approximately $6. Position size = $6 / (30 x $0.10) = 2 micro lots (0.02 lots).
Scenario 2: Rs 1,00,000 account on XM. Risk 2% = Rs 2,000 ($24). Trading GBP/USD with a 50-pip stop. Position size = $24 / (50 x $0.10) = 4.8 micro lots. Round down to 0.04 lots.
Always round down, never up. Rounding up increases your risk beyond your intended percentage.
Your risk-reward ratio only holds if execution is clean. A 1:2 risk-reward with 1 pip of slippage becomes 1:1.7 on a 5-pip stop. Exness execution under 25ms means your planned ratios survive contact with the market.
Trade with Clean ExecutionFrequently Asked Questions
What risk-reward ratio should I aim for?
Aim for a minimum 1:2 risk-reward ratio. This means for every Rs 1,000 you risk, your potential profit should be at least Rs 2,000. With a 1:2 ratio, you only need to win 34% of trades to be profitable.
How do I calculate position size in lots?
Use the formula: Lots = (Account Risk in $) / (Stop Loss in Pips x Pip Value per Lot). For micro lots on EUR/USD, pip value is $0.10. So for $20 risk and 40-pip stop: $20 / (40 x $0.10) = 5 micro lots.
Should I risk 1% or 2% per trade?
Beginners should start with 1% risk per trade. As you develop a proven track record with a consistent win rate, you can increase to 2%. Never risk more than 2% on a single trade regardless of experience.
Does position sizing change for different pairs?
Yes. Pip values differ across currency pairs. USD/JPY and EUR/USD have different pip values. Always calculate the specific pip value for the pair you are trading before sizing your position.