Definition
A comparison of how much a trade could lose, if the stop-loss is hit, with how much it could gain, if the target is reached.
The story
A trader risks 10 points (entry to stop-loss) aiming for 20 points (entry to target). That's 1 to 2: twice as much potential gain as potential loss. The ratio says nothing about how likely either outcome is; a 1-to-5 trade that rarely works can still lose money over time.
Why markets watch it
It's a standard way traders plan a trade before taking it.
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms