Gross R:R only compares prices
For a long trade, the textbook ratio is:
With entry at $50, stop at $48 and target at $56, gross reward:risk is $6 ÷ $2 = 3:1. For a short, reverse both differences. The ratio is useful, but it assumes the quoted prices are the actual cash flows.
Net R:R compares complete outcomes
A more useful estimate calculates net P&L at the stop and target separately. Include entry commission, exit commission and adverse slippage on both sides.
Suppose you buy 20 shares at $50 and assume $0.05 adverse slippage each way. The adjusted entry is $50.05. At the planned stop, the estimated exit is $47.95; at target, it is $55.95. The price-based loss becomes $42 and profit $118.
Add $1 fixed commission on each order and the net stop loss becomes $44, while net target profit becomes $116. Net R:R is about 2.64:1, not 3:1.
Costs matter most on small moves
Fixed fees spread across more shares become smaller per share. But tight targets and stops leave less gross price movement to absorb costs. Two trades with the same gross ratio can therefore have different net economics.
| Item | Gross view | Net view |
|---|---|---|
| Entry | Quoted price | Price after slippage + entry fee |
| Stop outcome | Entry-to-stop difference | All cash flows at estimated stop fill |
| Target outcome | Entry-to-target difference | All cash flows at estimated target fill |
| Ratio | Price reward ÷ price risk | Net profit ÷ net loss |
Translate the ratio into break-even win rate
If every winner and loser had exactly these net outcomes, the break-even win rate before other considerations is:
Using $44 and $116 gives 44 ÷ 160 = 27.5%. This is arithmetic, not a claim about your strategy. Real outcomes vary, gaps occur, and partial exits change the distribution.
Slippage is an assumption, not a forecast. Use a few plausible inputs to see how sensitive the trade is. RiskSized shows both gross and net R:R so the cost impact stays visible.
When net R:R is unavailable
If costs make the stop scenario profitable or the target scenario unprofitable, the usual reward:risk interpretation breaks down. RiskSized displays a warning instead of presenting a misleading ratio. Taxes, borrow fees and market impact are not included.