What is the risk-reward ratio?

The risk to reward ratio is a key influencer of the investment decision and compares what an investor stands to lose against any potential gains. The risk here refers to the amount an investor stands to lose should the trade move against their expectations while the reward refers to the expected profits if it affirms their analysis and performs as expected. Before taking up a trading position, every investor must consider deciding on the most acceptable risk to reward ratio, which is essentially determined by their risk tolerance. Ideally, every trader should strive to maintain their risks well below potential gains.