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The relationship between your potential loss and potential gain on a trade.
Definition
The relationship between your potential loss and potential gain on a trade. A 1:3 risk-reward ratio means you're risking $1 to potentially make $3. Professional traders typically won't take trades with less than a 1:2 ratio because it means you only need to be right 33% of the time to break even.
Related Terms
Strategies for limiting potential losses in your investments.
An order to sell automatically if price drops to a specified level.
An order that automatically sells your position when price reaches a target level to lock in gains.
A period when smart money quietly buys up an asset before a major price move.
The average yearly return on an investment, calculated to account for compounding.
Profiting from price differences of the same asset across different markets.
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