Core terms
Risk/reward ratio (R:R)
A trade's planned target distance divided by its planned stop distance, such as 2:1 for a 10-cent target and a 5-cent stop. The realized version is average net win divided by average net loss.
The planned ratio is set before entry. The realized ratio comes from the log and is usually lower for scalps, because fixed costs are subtracted from every win and added to every loss, and stops can fill past their price. A planned 2:1 with a 5-cent stop becomes 1.73:1 after $0.005 per share of costs, and 1.46:1 with one cent of stop slippage (Illustrative).
A ratio says nothing about how often the target is reached. A farther target usually fills less often, so a better ratio can belong to a worse process. In one Illustrative plan, a 10-cent target reached on 45% of trades gave +0.14R per trade, while a 20-cent target reached on 25% gave 0.00R.
What traders should verify
Log planned and realized R:R separately. Track the four things that usually separate them: costs, entry slippage, stop slippage and exits taken before the target.
Do not conflate
Trader usage; there is no official definition, and the order of the two numbers varies: some write reward:risk, others risk:reward. Fixed "minimum 2:1" rules constrain a plan; they do not measure edge.
Primary source
Trader usage: there is no official definition, and platforms and tools may calculate it differently.