📖 Financial Lexicon Term
What is Risk-to-Reward (R:R)?
A ratio used by traders to compare the expected return of an investment to the amount of risk undertaken to capture it.
Detailed Explanation
R:R is the foundation of profitable trading. A 1:3 Risk-to-Reward ratio means you are risking $100 to make $300. With a 1:3 ratio, you can lose 70% of your trades and still be mathematically profitable over a large sample size.
💡 Practical Trading Example
Your Stop Loss risks 20 pips, and your Take Profit aims for 60 pips. This trade offers a 1:3 Risk-to-Reward ratio.