Risk/Reward: Your “Is This Bet Worth It?” Calculator

Alright, picture this: You’re at a sketchy carnival game, and the guy says, “Pay me $10, and you might win a tiny, slightly-deflated teddy bear, or you could win… my personal collection of lint.”

That, my friends, is essentially Risk/Reward in trading! It’s your brain’s little calculator asking, “How much am I willing to potentially lose (the risk) versus how much could I realistically gain (the reward) on this one specific trade?”

Are you risking a crisp $100 bill to maybe make $5 (a terrible ratio, like betting your car for a candy bar)? Or are you risking $100 for a shot at $300 or even $500 (now we’re talking, like betting a penny to win a pizza!)?

It’s about being smart, not greedy or reckless. So before you jump into any trade, ask yourself: Is the potential “cha-ching!” big enough to justify the potential “oof!”? If not, walk away! There are plenty of other sketchy carnival games (I mean, trades) out there.