What is a Risk to Reward Ratio?

Submitted by Share Trading on 19 January, 2011 - 19:44

What is the Risk/Reward Ratio?

In the money management calculator, there is an option to enable the risk and reward ratio to be revealed in the analysis.

The risk/reward is a ratio that many investors use to compare expected returns from their trade investment compared with the risk they took. The ratio is calculated mathematically using ratios and dividing the risk, which is the amount the investor expects to lose if the price moves against their position, by the reward, which is the amount of profit they take when their position is closed profitably.

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