Trading statistics
Risk–Reward Ratio
Amount at risk relative to potential reward under stated exits.
What Risk–Reward Ratio Means
Risk–reward compares planned loss with planned gain. LikeOptions states risk first, so risking $1 to seek $2 is 1:2. Probability and costs remain separate.
Risk–Reward Ratio Formula
Risk–reward = amount at risk : potential reward
How to Read the Result
Buying at $50 with a $46 stop and $58 target risks $4 to seek $8: a 1:2 ratio before gaps and slippage.
Limitations
- Stops may fill worse than planned.
- Maximum option loss may differ from a discretionary exit.
- It ignores probability, path, and time.
Common Questions
Does 1:3 make a trade good?
No. It only describes payoff asymmetry; probability and implementation still matter.
Measuring return and risk
- BetaDefinition
- AlphaDefinition
- Sharpe ratio formulaFormula
- Sortino ratio formulaFormula
- Maximum drawdown formulaFormula