Ask the internet what a good risk-reward ratio is and you'll get the same answer everywhere: aim for at least 1:2, ideally 1:3. Risk one rupee to make two or three. It sounds like a rule you can build a trading career on. By itself, it's almost useless, and believing it without the other half of the equation is how disciplined-looking traders still lose money.
What the risk-reward ratio is
The risk-reward ratio compares how much you stand to lose on a trade against how much you stand to gain. Your risk is the distance from your entry to your stop-loss. Your reward is the distance from your entry to your target. If you risk ₹30 to make ₹60, that's a 1:2 ratio. Simple, and genuinely useful as far as it goes.
The appeal is obvious: with a 1:2 ratio, you can be wrong more often than you're right and still come out ahead. That's true. But "how often you're right" is the missing variable, and without it the ratio tells you nothing about whether you'll make money.
The half nobody leads with: win rate
A ratio and a win rate are two halves of one equation. Neither means anything alone.
Here's the math that actually matters. For any risk-reward ratio, there's a minimum win rate you need just to break even. The formula is simple: breakeven win rate = 1 divided by (1 + ratio).
At 1:1, you break even at a 50% win rate.
At 1:2, you break even at about 33%.
At 1:3, you break even at about 25%.
So a 1:3 ratio only "works" if you win at least a quarter of your trades. If your real win rate on those wide-target trades is 20%, your beautiful 1:3 ratio loses money, steadily, while feeling disciplined. Meanwhile a humble 1:1 ratio with a 60% win rate prints. There is no good ratio in isolation. There's only a ratio paired with the win rate it actually achieves.
This is the trap in the standard advice. Pushing for a bigger reward usually means a more distant target, which you hit less often, which lowers your win rate. The ratio improves and the win rate falls, and the two changes can cancel out, or leave you worse off. You can't judge one without the other.
What this means for how you trade
The useful question isn't "what's a good ratio." It's "what's the highest ratio I can target while keeping a win rate that makes the math positive." That's a question you answer from your own data, not a blog. Pull your trades, group them by how far your targets were, and look at the win rate for each. You'll usually find a sweet spot: a target distance that's ambitious but still hit often enough. That's your real ratio, and it's personal.
Most traders have never done this. They adopt "1:3" because an article said so, set distant targets, watch price come most of the way and reverse, and conclude they have a psychology problem. Often they just have a ratio their win rate can't support.
What options do to your ratio
For options buyers there's an extra wrinkle the stock-focused articles miss: theta. The risk-reward ratio you calculate at entry assumes the target and stop are fixed. They aren't. Time decay is eating the premium every hour, which means the longer the trade takes to reach your target, the less that target is actually worth, and the more the math quietly shifts against you.
A 1:3 that resolves in twenty minutes is real. A 1:3 that needs the whole afternoon has been silently degraded by decay, and on expiry day the erosion is brutal. For an options buyer, a good ratio is one you can reach quickly, before the clock takes the reward you were aiming for.
Risk-reward is one piece of a complete risk-management system, sitting alongside position sizing and the stop-loss that defines the "risk" half in the first place. Get the three working together and the ratio finally means something.
SubTrades reads your tradebook and shows you your real risk-reward and win rate together: how far your targets were, how often you actually hit them, and which target distances made money versus which just looked disciplined. Auto detection of psychological patterns. Import your Zerodha, Dhan, Upstox, or Angel One trades and see it on day one. Free during the founding beta.