Risk and Reward Calculator: a practical guide
How does the possible gain compare with the planned loss?
Compare a stock purchase's possible gain with its planned loss.
By VolatileShares · Example version 1 · Updated . Hypothetical inputs, not financial recommendations or live company data.
A worked example, in plain English
The idea in 10 seconds: For each $1 you plan to risk, compare how many dollars you hope to gain.
Two possible outcomes. One useful trade-off.
A bigger reward is not more likely. A stop may fill below your planned price.
- Planned risk per share
- $2.00
- Potential reward per share
- $6.00
- Reward / risk multiple
- 3
Walk me through the full calculation
Buying at $20.00, with a stop at $18.00 and a target at $26.00, models $2.00 of risk and $6.00 of potential reward per share. That is about 3 dollars of potential reward for each dollar of planned risk.
If every outcome matched these exact prices, winning 25% of the time would break even before costs. That is a mathematical threshold, not your chance of winning. Fees raise the threshold, and gaps or slippage can make losses larger than planned.
Inputs used for this example
These are the calculator's example defaults, not suggested amounts or rates. Market calculators initially display USD. Change currency in the toolbar without creating a personal profile. Under optional Location & display settings, choose an example country for its currency and available historical CPI. Review any example household size and rent assumption before explicitly applying local assumptions: matching unedited budget/inflation fields change, while edited or restored inputs are kept. Lifestyle budgets are fictional examples, not measured national averages. Local tax, pension and borrowing links are guidance, not personal calculations. Switching currency alone does not change percentages, ages or share counts.
- Price you plan to buy at (USD)
- 20
- Stop price (USD)
- 18
- Price you hope to sell at (USD)
- 26
Work backwards from your goal
What sale price matches my reward-to-risk goal?
Try 2 as a reward-to-risk goal.
Choose Work backwards, enter your target and the few essential inputs, then choose Calculate my goal. The answer is checked with the same forward calculation and applied in one step. Example assumptions are disclosed under More options. Expand Calculation details & tools only if you want more detail. Impossible or out-of-range goals show an error instead of invented numbers. Long numbers display commas while editing; calculations and saved snapshots keep the original precision.
Return to the interactive calculator above →How the calculation works
Risk/share = entry - stop. Reward/share = target - entry. Reward/risk = reward / risk. Break-even win rate = risk / (risk + reward) x 100.
What this cannot tell you
Long positions only. Assumes fills at the entered prices, equal outcomes and no fees. Stops do not guarantee execution; gaps can increase losses. Break-even win rate is not a probability forecast.
Changing an assumption changes the example, not the future. Verify source dates and actual product, tax and lending terms before relying on any result. These tools do not replace appropriately qualified advice.
Break-even is not the chance of winning
With $2 of potential reward for each $1 of planned loss, the no-cost break-even win rate is about 33.33%, assuming every win and loss matches those amounts. That arithmetic does not estimate how often a target or stop will be reached.
Illustrative arithmetic, not market evidence or a promise of returns.
Keep a useful starting point
In the interactive calculator, compare different assumptions or explicitly save a named snapshot to My browser notebook. Saving is optional and browser-only, not an account or cloud backup. Revisit it on the same browser profile; restoring never refreshes prices or assumptions.