What Is a Good Risk-Reward Ratio?

The most common answer to "what is a good risk-reward ratio" is a confident number like 2:1 or 3:1. The more accurate answer is that the question is only half of one. A risk-reward ratio has no meaning on its own, because it is one end of an equation whose other end is your win rate, and neither end tells you anything without the other.

The breakeven relationship

Risk-reward and win rate are tied together by a single piece of arithmetic. For a strategy to break even, the win rate has to exceed 1 divided by 1 plus the reward-to-risk ratio. Running that across the common ratios:

• At 1:1, breakeven is a win rate above 50%.
• At 2:1, breakeven is above 33%.
• At 3:1, breakeven is above 25%.
• At 1:2, breakeven is above 67%.

This immediately dissolves the idea of a universally good ratio. A 3:1 setup sounds excellent, but if it only wins one time in five it loses money. A 1:2 setup sounds poor, but if it wins three times in four it is comfortably profitable. The ratio describes the shape of your wins and losses; the win rate describes how often each occurs; only together do they say whether the strategy makes money.

Why they are not independent dials

The folklore instruction to "always take trades at 2:1 or better" treats the ratio as a setting you are free to choose without consequence. You are not. Reward-to-risk and win rate are linked properties of a setup, and moving one moves the other. Widen your profit target to lift the ratio and your win rate falls, because price reaches a distant target less often than a near one. Tighten your target to raise the win rate and the ratio shrinks. You can slide along this trade-off, but you cannot beat it by decree, and a setup forced into a ratio its structure does not support simply pays for the better ratio with a worse hit rate.

Costs move the line

Every breakeven above is the pre-cost version, and costs shift all of them against you. Fees, the spread, and slippage are subtracted from each result regardless of outcome, which raises the win rate you actually need at every ratio. A setup that breaks even at 33% on a whiteboard might need meaningfully more once real execution costs are applied, and for high-frequency strategies that gap can be the whole margin. The number to beat is never the clean one from the formula; it is the formula's number plus the tax you pay to trade.

The useful version of the question

A better question than "what is a good ratio" is "what is the real, cost-adjusted combination of ratio and win rate that my setup actually produces, measured on enough trades to trust". That number, not a folklore target, is what decides whether the strategy is worth trading, and it can only come from your own record rather than a rule of thumb. Measuring it honestly, costs included, is the subject of our case study.