Risk reward ratio: the win rate you actually need

Short answer: A risk reward ratio compares the amount you may lose with the amount you plan to make if a trade reaches its target. It does not tell you whether the trade is profitable by itself. To judge it, combine the ratio with your win rate and the costs of entering and closing the trade.

What does a risk reward ratio measure?

A risk reward ratio compares your planned loss at the stop with your planned gain at the target. In the common risk-to-reward notation, 1:3 means risking one unit to make three if the target is reached. That’s a plan for one trade, not a probability that the target will be reached.

For example, if the stop would lose $100 and the target would gain $300, the planned ratio is 1:3. A win rate is the share of closed trades that make a profit. The ratio describes the size of wins and losses; the win rate describes how often wins happen. A complete estimate needs both. (Binance Academy, accessed 2026)

Use the same unit for both sides. If the stop is 2% below your entry and the target is 6% above it, that is 1:3 by price movement for a long position of fixed size. If you change position size, compare the dollar loss and dollar gain instead. For a short position, reverse the price directions.

How do you calculate risk reward ratio and break-even win rate?

Divide the planned reward by the planned risk to get the reward multiple. Then use the multiple to find the gross break-even win rate. The gross formula assumes there are no fees or execution costs.

Reward multiple = planned reward ÷ planned risk

Gross break-even win rate = planned risk ÷ (planned risk + planned reward)

If your planned loss is $100 and your planned gain is $200, the reward multiple is 2 and the gross break-even win rate is $100 ÷ ($100 + $200), or 33.33%. At exactly that rate, gains and losses offset before costs. You need a higher win rate to make money.

Risk:reward	Gross break-even win rate
1:1	50.00%
1:2	33.33%
1:3	25.00%
1:4	20.00%

A 1:3 target needs fewer wins than a 1:1 target only if the outcomes match the plan. It does not mean that a 1:3 setup is better: a target farther from entry may be reached less often. (FOREX.com, accessed 2026)

What win rate does a 1:3 risk reward ratio need after fees?

Trading costs raise the break-even win rate because they reduce each winner and increase each loss. In the example below, a $10,000 USDT-M futures position has a $100 planned loss at a stop 1% away. Its target gain is $100 to $400 for ratios from 1:1 to 1:4.

For a transparent estimate, assume Binance’s Regular User example rate: a 0.05% taker fee on each side, with no BNB discount, plus 0.025% slippage against the trade on each side. Binance’s fee FAQ, checked October 2026, calculates fees as position value multiplied by the fee rate and gives 0.05% as a Regular User taker-fee example. It says its fee rates are hypothetical and directs traders to the latest fee table. The rate and fee tier should be checked for your own account before trading. (Binance, 2026)

At $10,000 notional on each side, the assumed round-trip taker fees are $10 and assumed slippage is $5. That makes total modeled cost $15, or 0.15R when the planned loss is $100. This is an illustration, not a quote for your fills. It keeps the notional equal on entry and exit to make the table easy to reproduce; actual execution values can differ. Funding payments and other costs are excluded.

Risk:reward	Gross break-even	Break-even with $15 modeled costs
1:1	50.00%	57.50%
1:2	33.33%	38.33%
1:3	25.00%	28.75%
1:4	20.00%	23.00%

The cost-adjusted formula is (planned loss + round-trip cost) ÷ (planned loss + planned reward). With a 1:3 trade, that is ($100 + $15) ÷ ($100 + $300), or 28.75%. The $15 is deducted from a winning trade and added to the loss on a losing trade. If your fee tier, position size, slippage or funding differs, replace the assumptions and recalculate.

How do trading expectancy and profit factor answer the question?

Expectancy is the average amount a strategy would gain or lose per trade over a set of outcomes, using the average win, average loss and win rate. It’s more useful than either ratio or win rate alone. (Binance Academy, accessed 2026)

Take an illustrative set of 100 trades with a $100 planned risk, a 1:2 target and a 40% win rate. After the $15 modeled cost, each winner nets $185 and each loser loses $115. Forty wins total $7,400; 60 losses total $6,900. Net result: $500, or $5 per trade (0.05R) on average.

Profit factor is the total value of winning trades divided by the absolute total value of losing trades. In this example it is $7,400 ÷ $6,900 = 1.07. Above 1 means the winning trades exceeded the losing trades in total; below 1 means losses were larger. (TradingView, accessed 2026)

These figures assume every winning trade reaches the full target and every losing trade reaches the full stop. Real results can include partial exits, gaps, rejected orders, changing position sizes and costs. For your own records, calculate the average net win and loss from closed trades after fees, then use:

Expectancy = (win rate × average net win) − (loss rate × average net loss)

Use decimal rates: 40% is 0.40. If you don’t have a trade history with consistent entry, stop and target rules, the break-even table is a threshold, not proof that your setup can meet it.

When can a 1:3 setup be worse than a 1:1.5 setup?

A 1:3 setup is worse when its win rate is too low to cover the larger number of losing trades. Compare net expectancy using each setup’s own results, rather than assuming both keep the same win rate after you move the target.

Using the same $100 risk and $15 modeled cost, suppose a 1:3 setup wins 28% of the time. Its net winner is $285 and its net loser is $115, so expectancy is 0.28 × $285 − 0.72 × $115 = −$3 per trade. Suppose a 1:1.5 setup wins 46% of the time: its net winner is $135, and expectancy is 0.46 × $135 − 0.54 × $115 = $0 per trade. These win rates are hypothetical inputs, not market estimates.

The decision rule: keep the stop and target rules fixed, record enough trades to estimate the win rate and average outcomes, subtract actual costs, and compare net expectancy. Don’t move a target farther away just to make the ratio look larger; a more distant target can be hit less often. (FOREX.com, accessed 2026)

If you compare personal trading with pooled trading, our introduction to Cointrapper explains the difference: it is a private trading pool on Binance, not a tool for placing your own orders. The pool’s terms and participant fees are separate from the futures costs in this example. For a plain-language explanation of investment risks, see withdrawals and risk.

Crypto futures are high risk, and you can lose money. Nothing here is individual investment advice.