Risk/Reward Ratio
The potential loss versus potential gain of a trade.
Full Definition
Risk/reward ratio compares the potential loss (distance to stop loss) with potential gain (distance to take profit). A 1:2 ratio means risking $100 to potentially make $200. Favorable ratios (1:2 or higher) allow traders to be profitable even with a win rate below 50%. Always calculate risk/reward before entering a trade.