Risk-to-reward ratio: why the net number is the one that counts

The gross ratio

Risk-to-reward compares two distances:

• Risk: from the entry to the Stop Loss.
• Reward: from the entry to the Take Profit.

Enter at 100, stop at 98, target at 104. You risk 2 to make 4. That is a gross R:R of 2.0.

The net ratio

Every trade pays fees twice, once to enter and once to exit. Those fees don’t care whether you win or lose. They make the loss bigger and the win smaller.

Take the same trade with a fee of 0.1% per side. The round trip costs about 0.2 at a price of 100.

	Gross	Net (after fees)
Risk	2.0	2.2
Reward	4.0	3.8
R:R	2.0	1.73

Nothing about the chart changed. The trade just got about 14% worse.

Why small targets suffer most

Now a scalp on the same asset: enter at 100, stop at 99.6, target at 100.8. Gross R:R is still 2.0. The fee is still 0.2.

	Gross	Net (after fees)
Risk	0.4	0.6
Reward	0.8	0.6
R:R	2.0	1.0

The same 2:1 on paper is a coin flip after costs. Fees are a fixed cost per trade, so the smaller the distances, the bigger their share. This is why ScanMyChart always shows R:R net of fees, and why tight scalping plans end in NO TRADE more often.

The win rate a ratio requires

A ratio is only half the story. The other half is how often the setup works. The win rate you need just to break even is:

break-even win rate = 1 ÷ (1 + R:R)

Net R:R	Break-even win rate
0.5	67%
1.0	50%
1.5	40%
2.0	33%
3.0	25%

A low ratio is not forbidden, but it asks you to be right most of the time. Be honest about whether your setup does that.

Don’t bend the levels to fix the ratio

When the net ratio is poor, there are two honest options: wait for a better entry, or skip the trade. Moving the stop closer to make the number look better only moves it into the noise. Moving the target further away only makes it less likely to be reached. In the chart above, the entry sits in the middle of the range: the honest stop is far and the next level is close. That is a NO TRADE, and saying so is the plan.