Risk and reward

The break-even rate follows from the ratio alone. A ratio of 1 to 2 means one win pays two units and one loss costs one unit, so the wins must be twice the losses in units. That happens when one trade in three wins, which is about 33 per cent.

Change the ratio and the required rate moves. At 1 to 1, one win covers one loss, so half the trades must win, or 50 per cent. At 1 to 3, one win covers three losses, so one trade in four must win, or 25 per cent. The pattern is simple: the required rate is one divided by one plus the reward multiple.

This arithmetic does not care how the market feels or how strongly the reader believes the idea. It is the same for every account size and every currency pair. What changes is the ratio the market actually offers, and that is a separate question from the arithmetic.

The required rate is also the rate before costs. Spread, commission and swap sit on top of it, so the rate needed to keep the account level is higher than the table above. Those costs vary between brokers, and the page does not put a number on them.

The ratio is decided by two distances. The stop distance is where the trade idea is wrong, and the target distance is where the idea has paid enough to justify the risk. Both are measured in pips on the chart, not chosen because a number looks round.

A common habit is to pick the target first, often a round figure, and let the stop fall wherever it lands. That inverts the process. The stop then sits at a distance the chart did not choose, and the ratio becomes 1 to 1 or worse without anyone deciding it.

The order that keeps the arithmetic honest is stop first, target second. Mark where the idea fails, measure that distance, then ask whether price can realistically travel twice as far before it reaches the stop. If it cannot, the trade is not worth taking at that size.

This is where the fixed arithmetic meets an unfixed market. The ratio the reader wants is not always the ratio the chart offers. When the two disagree, the chart wins, and the correct response is to skip the trade rather than shrink the stop to force a better number.

Cost in naira starts with pip value. On EUR/USD, one pip on 0.20 lots is 2 units of the quote currency, which is the second currency in the pair. The quote currency here is the US dollar, so one pip is 2 dollars before conversion.

To express that in naira, the reader needs a naira rate for the quote currency. At ₦1,085 per unit, 2 units is ₦2,170 for one pip. A stop 25 pips away is 25 times that, which is ₦54,250. A target 50 pips away is ₦108,500.

Those figures let the reader compare the risk to the account. If ₦54,250 is a large share of the balance, the position is too big for the stop the chart requires, and the answer is a smaller size, not a tighter stop.

The naira rate used here is an example, and it moves. Brokers may also round pip value, and the conversion rate they apply can differ from the one on a news screen. Treat the naira figures as a worked example, not a quote.

A single trade says little. The ratio and the win rate matter over many trades, because short runs can hide a losing edge. Ten trades at a 1 to 2 ratio with four wins and six losses still loses money: four wins pay eight units, six losses cost six, so the net is two units down.

That is the trap the page describes. A 40 per cent win rate feels like winning often enough. At 1 to 2 it is not, and the account shrinks while the reader counts wins rather than units.

The fix is to record units, not feelings. Each closed trade adds or subtracts a multiple of the risk, and the running total shows whether the ratio and the win rate are working together.

Costs make the run worse. Spread is paid on entry and exit, and commission or swap may be added. Those charges vary between brokers, so the same trades can produce different totals at two firms.

Size is the lever the reader controls after the ratio is set. The stop distance is fixed by the chart and the ratio is fixed by the arithmetic, so the only free number is how many lots to trade.

A useful test is to ask what five losses in a row would cost. At ₦54,250 per loss on 0.20 lots, five losses are ₦271,250. If that figure would change how the reader trades or sleeps, the size is too large.

This is not a prediction that five losses will happen. It is a check that the account can absorb a normal losing run without forcing a change of plan. A run of losses is ordinary, not a sign that the method has failed.

The reader can also check the margin the broker requires, because a position that uses most of the balance leaves no room for the trade to breathe. Margin rules and stop-out levels vary between brokers, so the figure must come from the account's own terms.