{"id":14263,"date":"2026-05-27T07:40:17","date_gmt":"2026-05-27T07:40:17","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/risk-reward-ratio\/"},"modified":"2026-05-27T07:40:17","modified_gmt":"2026-05-27T07:40:17","slug":"risk-reward-ratio","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/risk-reward-ratio\/","title":{"rendered":"Risk Reward Ratio"},"content":{"rendered":"

The risk-reward ratio compares the potential profit of a trade to the potential loss. It tells traders how much they stand to gain for every rupee they risk. A trade with a 1:3 risk-reward ratio risks Rs 1 to potentially earn Rs 3. Understanding and maintaining a favourable risk-reward ratio is fundamental to long-term profitable trading<\/a>.<\/p>\n

What Is the Risk-Reward Ratio?<\/h2>\n

Risk-reward ratio = (Target Price – Entry Price) \/ (Entry Price – Stop Loss Price)<\/p>\n

**Example:**
\nEntry: Rs 100
\nStop-loss: Rs 95 (risk: Rs 5)
\nTarget: Rs 115 (reward: Rs 15)
\nRisk-reward ratio: Rs 5 : Rs 15 = 1:3<\/p>\n

Why Risk-Reward Ratio Matters<\/h2>\n

Imagine a trader with a 40% win rate but a 1:3 risk-reward on every trade:<\/p>\n

– 10 trades: 4 winners, 6 losers
\n– Losses: 6 x Rs 1,000 = Rs 6,000
\n– Gains: 4 x Rs 3,000 = Rs 12,000
\n– Net profit<\/a>: Rs 6,000<\/p>\n

A trader with a 40% win rate and favourable risk-reward is profitable even though they lose more often than they win. This is the mathematical power of maintaining a good risk-reward ratio.<\/p>\n