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What is a risk ratio?

kennyhubbard (compuforexpamm)
Sep 16 2009 at 04:43
265 postów
Hi there,

Please forgive my ignorance(I am sure there are others that do not understand) but please can you explain what risk ratio is and how it is derived.

Is it a simple mathematical addition(or division) of the wins and losses for a currency pair, or is there something more scientific about it?

Would there be any value in adding an aggregate risk ratio to the portfolio so that people can see it at a glance with the major stats? Some-one previously mentioned sharpe ratio......this would also be nice.

Thank you.

Kenny

Wealth Creation Through Technology
Ethan (Staff)
Sep 16 2009 at 07:01
1400 postów
Kenny, it's a perfectly valid question. We do apologize for not having a detailed explanation in the help section, as we're very busy with platform development, but promise to add it in the near future.

As covered in previous thread:

'It measures the risk:reward ratio, showing you the average reward you are getting on each trade in the selected currency. So if you have a risk ratio of 1.5 in EURUSD, it means that for every 1 unit of the trade you are initiating, you're expected to get back 1.5 units.

More over, you can see from this statistic which currencies are your more profitable than others and based on that you can decide in which currencies to increase your position sizing, and which to lower, which will eventually increase your profitability.'

Regarding to adding a risk ratio to the portfolio - this is something we might add, thank you.

As to the sharpe ratio - there are several variations of it, so not sure it would help showing it. For example, you can base the calculation on absolute yield or cumulative which will result in two different ratios.

AniLorak
May 03 2017 at 17:29
920 postów
Risk ratio means, how much risk you are taking in your single trade position! Such as, now I am using only 2% risk reward ratio in my trading! Yes, before I was an aggressive Forex trader and then I used 5-8% risk in a trade! I see, high risk reward ratio brings more lose! In other words, low risk reward ratio is much reliable and safe!

MeuLugar
Jun 05 2017 at 06:29
45 postów
AniLorak posted:
Risk ratio means, how much risk you are taking in your single trade position! Such as, now I am using only 2% risk reward ratio in my trading! Yes, before I was an aggressive Forex trader and then I used 5-8% risk in a trade! I see, high risk reward ratio brings more lose! In other words, low risk reward ratio is much reliable and safe!


Well, I appreciate your contribution! But, high risk reward ratio is not always risky! Like, when you have enough knowledge and you are very sure about the entry quality then surely you can use good opportunities of market with high risk ratio! But, it’s not applicable for all!

AmDiab
Jun 26 2017 at 06:18
718 postów
Luckily, you have already got your answer! Yes, I also appreciate low risk reward ratio! Because, in my 1st year of trading I used high risk reward ratio, then I was a loser! But now I have a fixed low risk reward ratio (exactly 2%) that I sincerely use in my live trading!

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