How much you stand to gain versus how much you risk on a trade — the ratio of target distance to stop distance.
If you risk 20 pips to make 40, that is a 1:2 risk-reward ratio. It is measured from your entry to your stop-loss (the risk) and from your entry to your target (the reward).
A good ratio lets you be profitable even with a modest win rate: at 1:2, you only need to win about a third of trades to break even. It is the core of positive expectancy.
Before entering, mark your stop and target and check the reward is a worthwhile multiple of the risk — many traders require at least 1:1.5 or 1:2 to take a trade.
A great ratio means nothing if the target is unrealistic. Reward must be reachable given the structure, and ratio works over many trades, never one — pair it with position sizing.
Reading a definition is step one. Chart Bound drills you on spotting Risk-Reward Ratio and dozens of other setups on live candles, and the Daily gives you one fresh chart to read every day. Free to start.