The ratio between the potential loss (risk) and potential profit (reward) on a trade. A 1:2 RR means you risk $1 to potentially make $2.
Risk-reward ratio alone doesn't determine profitability — it must be considered alongside win rate. A 1:1 RR requires above 50% win rate to be profitable. A 1:2 RR only needs 34% win rate. A 1:3 RR needs just 25%. Most successful prop firm traders target 1:1.5 to 1:2 RR, which allows profitability with realistic win rates of 45-55%. Higher RR ratios (1:3+) sound attractive but typically come with lower win rates because the target is harder to reach.