At Pax Market Funds, we have seen thousands of traders enter evaluations with excitement, confidence, and good chart setups but fail because they never mastered R:R. On the other hand, traders with a strong risk-to-reward mindset pass evaluations faster, hit profit targets with fewer trades, and maintain consistency even during volatile market conditions.
So what exactly is the Risk-to-Reward Ratio, and why is it essential for every trader who aims to pass a prop firm challenge? Let’s break it down fully.
1. What Is Risk-to-Reward Ratio (R:R)?
The Risk-to-Reward Ratio compares how much money you risk on a trade versus how much you aim to earn.
It’s represented as:
Examples:
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Risking $50 to gain $150 → 1:3
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Risking $100 to gain $100 → 1:1
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Risking $200 to gain $100 → 2:1 (negative)
A good R:R helps your strategy stay profitable even with a low win rate. A poor R:R destroys your account even with many winning trades.
2. Why R:R Matters More Than Your Win Rate
Most losing traders are obsessed with having an 80% or 90% win rate, thinking this equals success. But the real secret of pro trading is this:
You can be profitable even with a 40% or 50% win rate—if your R:R is strong.
Let’s compare two traders:
Trader A – Low Win Rate but Good R:R
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Win rate: 45%
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R:R: 1:3
Out of 10 trades:
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4 wins = +12R
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6 losses = –6R
Net Profit = +6R
Trader B – High Win Rate but Weak R:R
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Win rate: 80%
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R:R: 1:1
Out of 10 trades:
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8 wins = +8R
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2 losses = –2R
Net Profit = +6R
Same profit, but Trader A loses more trades and still grows the account consistently.
That’s the power of a strong Risk-to-Reward Ratio.
3. Why Prop Firms Focus on R:R During Evaluations
Prop firms like Pax Market Funds don’t just want profitable traders.
We want sustainable traders.
An evaluation tests:
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discipline
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psychological strength
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consistency
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risk control
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strategic thinking
R:R reveals a trader’s professionalism better than any indicator.
Prop firms immediately notice:
✔ Do you take small losses and let winners grow?
✔ Do you cut profits early out of fear?
✔ Do you trade without a defined stop loss?
✔ Do you over-risk to reach the profit target faster?
Traders with stable R:R show they can manage firm capital safely without emotional decisions.
4. The Ideal R:R for Prop Trading Success
Different strategies have different ratios, but professionals generally follow:
1:2 → Minimum acceptable
Great for scalpers and day traders.
1:3 → Professional standard
Most successful swing and intraday traders aim for this.
1:4 or higher → High-probability setups
These ratios are common in clear trending markets.
Using these ratios means you need fewer trades to reach a 10% profit target while avoiding a 4% daily or 8% total drawdown—key rules at Pax Market Funds.
5. How to Calculate R:R Quickly
Calculating R:R is simple and should be done before entering a trade.
Step 1: Determine your Stop Loss (risk).
Example: SL = 25 pips.
Step 2: Determine your Take Profit (reward).
Example: TP = 75 pips.
6. How Good R:R Helps You Pass Prop Firm Challenges
Prop firm challenges are built to test your discipline, not random luck.
R:R plays a bigger role than most traders realize.
✔ Helps hit profit targets faster
Just 3–4 good trades at 1:3 or 1:4 can push your account toward evaluation success.
✔ Reduces drawdowns
Smaller losses protect your account from breaches.
✔ Lowers emotional pressure
You don’t need a high win rate to stay in profit.
✔ Improves your overall trading psychology
You stop forcing trades and wait for quality setups.
✔ Makes scaling easier
Prop firms love traders who maintain a consistent R:R over time.