{"id":5906,"date":"2019-02-12T09:18:36","date_gmt":"2019-02-12T09:18:36","guid":{"rendered":"https:\/\/www.wasteyourtime.co\/?p=5906"},"modified":"2020-07-08T11:53:54","modified_gmt":"2020-07-08T10:53:54","slug":"risk-reward-ratio","status":"publish","type":"post","link":"https:\/\/traders-paradise.com\/magazine\/2019\/02\/risk-reward-ratio\/","title":{"rendered":"The risk-reward Ratio"},"content":{"rendered":"

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3 min read<\/span><\/i><\/p>\n

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The risk-reward ratio is a formula used to measure the expected gains of a given investment against the risk of loss.<\/span><\/p>\n

It is typically shown as a figure for the assessed risk separated by a colon from the figure for the prospective reward. The adequate ratio<\/a> can vary, but trade experts recommend a ratio between 2:1 and 3:1 to determine a worthy investment. \u00a0<\/span><\/p>\n

Typically, the ratio quantifies the relationship between the potential money lost, should the investment or action fail, versus the money realized if all goes as planned.<\/span><\/p>\n

In other words, the risk-reward ratio measures how much your potential reward is, for every coin you risk.<\/span><\/p>\n

For example:<\/span><\/p>\n

If you have a risk-reward ratio of 1:2, it means you’re risking $1 to potentially make $2.<\/span><\/p>\n

But, if you have a risk-reward ratio of 1:4, it means you’re risking $1 to potentially make $4.<\/span>
\nInvestors use the risk-reward ratio to define the viability or worthiness of a given investment. You can limit risk by issuing stop-<\/span>loss orders, \u00a0sometimes. That will trigger automatic sales of stock or other securities when they hit a particular price. If you don’t implement such a mechanism in place, the risk is likely endless.<\/span><\/p>\n

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