ARMFR/R calculator: a risk reward ratio calculator
The R/R calculator — in English a risk reward ratio calculator — answers the question of whether a trade is worth the risk. The ratio is calculated from three prices, then adjusted for costs and converted into two values that matter more than the ratio itself: the break-even win rate and the expectancy of the trade at your share of winners.
How the ratio and the break-even win rate are calculated
| Value | Formula | In the example |
|---|---|---|
| Risk | |entry − stop| | 40 pips |
| Potential | |target − entry| | 80 pips |
| Ratio | potential ÷ risk | 1 : 2.00 |
| Net ratio | (R/R − costs) ÷ (1 + costs) | 1 : 1.73 |
| Break-even win rate | 1 ÷ (1 + net R/R) | 36.7 % |
| Expectancy | win rate × net R/R − (1 − win rate) | +0.09 R |
Costs are set as a share of risk because that is exactly how they are felt: a spread of 2 pips with a stop of 20 pips is 10 % of the risk, and with a stop of 100 pips only 2 %. In the calculation they are added to the risk and subtracted from the potential: the trade is opened on the worse side of the spread and closed on it too.
What the chart shows
The line on the chart is the expectancy of the trade at different win rates and your current ratio. The point where it crosses zero is the break-even win rate: to the left of it the system loses, to the right it earns.
A useful exercise: move the target further away and see how the line rises. And then ask yourself how much your win rate will fall with such a target. The ratio and the win rate are inversely linked, and the calculator shows only the first half of that relationship — the second is known only from your trade journal.
Four EUR/USD trades compared
The calculation is convenient not for a single trade but for choosing between several. Below are four entry options on one pair, calculated at a win rate of 40 % and costs of 10 % of the risk.
| Entry / stop / target | Risk | Ratio | Net R/R | Expectancy |
|---|---|---|---|---|
| 1.0850 / 1.0810 / 1.0930 | 40 pips | 1 : 2.00 | 1 : 1.73 | +0.09 R |
| 1.0850 / 1.0830 / 1.0890 | 20 pips | 1 : 2.00 | 1 : 1.73 | +0.09 R |
| 1.0850 / 1.0810 / 1.0890 | 40 pips | 1 : 1.00 | 1 : 0.82 | −0.27 R |
| 1.0850 / 1.0800 / 1.1000 | 50 pips | 1 : 3.00 | 1 : 2.64 | +0.45 R |
The first two rows show an important property: the ratio does not depend on the absolute distance. A trade with a 20-pip stop and a 40-pip target is equivalent to one with a 40-pip stop and an 80-pip target — provided the costs in both are the same as a share of risk. In practice they are not: on a tight stop the spread takes a larger share, and the second row will turn out worse than the first on a real account.
The third row is the most common mistake. A ratio of 1 : 1 at a win rate of 40 % gives negative expectancy even without costs, and with them it becomes −0.27 R. Such trades are taken when the entry has already been made and the target is «fitted» to the nearest level.
Frequently asked questions
How do you calculate the risk-to-reward ratio?
Divide the distance from the entry to the target by the distance from the entry to the stop. The result is written as «1 to N», where N is the size of the target in units of risk.
Which costs should be entered?
The spread plus the commission, converted into pips and divided by the stop length. For positions held longer than a day it is worth adding the swap for the planned holding period.
Why does the calculator still show a ratio at a zero win rate?
The ratio is a property of the trade itself: it does not depend on how often you win. The win rate affects only the expectancy, and at a low value it becomes negative even with an excellent ratio.
How do you set the costs as a share of risk?
Convert the spread and the commission into pips and divide by the stop length. A spread of 1.5 pips plus a commission of 0.5 pips with a stop of 20 pips gives 10 %.
What does the chart on this page show?
The expectancy of a trade at different win rates and your current ratio. The point where it crosses zero is the break-even win rate: to the left the system loses, to the right it earns.
Why is the result «—» when the entry and the stop prices are equal?
The risk equals zero, and you cannot divide by zero: the ratio does not exist. This is not a fault but an indication that the stop level has not been chosen yet.
Should the swap be counted in the costs?
If the position is held longer than a day, yes. Convert the expected charge over the planned period into pips and add it to the spread and the commission.
Can the calculator be used for targets in pips?
Yes, enter any numbers in the same units — for example an entry of 100, a stop of 60, a target of 180. The ratio and the expectancy are calculated from the differences, so the scale does not matter.
How does the net ratio differ from the ordinary one?
The ordinary one is calculated from the levels, the net one includes the costs: they are added to the risk and subtracted from the target. It is the net value that sets the real break-even win rate.
How do you quickly assess whether a trade is worth taking?
Compare the break-even win rate with your actual one from the journal. If the actual one is lower, the trade is losing on average, however attractive the chart may look.
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