Risk of Ruin Calculator
Enter your win rate, payoff ratio, risk per trade and number of trades to instantly compute the probability of blowing your account. Live closed-form approximation plus a seeded 10,000-trial Monte Carlo simulation for drawdown and median final balance.
Inputs
LiveFixed fractional shrinks risk after losses (compounding). Fixed dollar keeps risk constant in absolute terms.
Account balance before the trading sequence begins.
Percent of current balance risked per trade. Recommended 0.5–2%.
Fixed dollar amount risked per trade.
Share of trades that close in profit. 0–100.
Avg win ÷ avg loss. 1.5 = win 1.5× loss.
Length of the trading sequence to simulate.
Balance level that counts as ruin. 50 = ruined at 50% drawdown.
Results
Risk of ruin
Risk of drawdown
0.00%
Expected max DD
0.0%
Median final balance
$0.00
Edge / trade
0.000R
Ruin probability by risk level
| Risk / trade | Risk of ruin |
|---|
Monte Carlo simulation
Run 10,000 seeded trials of your trading sequence. Captures path-dependent ruin, max drawdown distribution and median final balance that the closed-form cannot.
How risk of ruin is calculated
Two engines power this calculator: an instant closed-form approximation for the headline number, and a seeded Monte Carlo simulation for path-dependent statistics like max drawdown.
Define your edge
Edge per trade in R units is E = p×b − q, where p is win rate, q is loss rate and b is payoff ratio. If E ≤ 0 the strategy has no statistical edge and ruin trends to 100% over many trades.
Instant approximation
The fixed-fractional closed form normalizes the edge into a gain-to-loss fraction and raises it to the power of the number of risk units to the ruin line. It updates live on every keystroke.
10,000-trial simulation
A seeded PRNG walks 10,000 paths through your trades, applying wins and losses to the balance. It captures max drawdown, median final balance and path-dependent ruin the closed form cannot.
edgeFraction = (p*b - q) / (p*b + q)
unitsToRuin = ln(ruinFraction) / ln(1 - riskFraction)
riskOfRuin = ((1 - edgeFraction) / (1 + edgeFraction)) ^ unitsToRuin
# Fixed-fractional: riskFraction = riskPercent / 100
# Fixed-dollar: riskFraction = riskDollars / startingBalance
# ruinFraction = ruinThreshold (0.001 epsilon when threshold = 0)
# If edgeFraction <= 0 -> riskOfRuin = 1Worked examples
See how the closed-form formula plays out with real numbers — one profitable strategy and one with no statistical edge.
55% win rate, 1.5 payoff, 1% risk, 100 trades
A solid trend-following strategy: you win 55% of trades and your average win is 1.5× your average loss. Risking 1% per trade over 100 trades, how likely is total ruin?
p = 0.55, q = 0.45, b = 1.5, risk = 0.01
edgeFraction = (p×b − q) / (p×b + q)
= (0.55×1.5 − 0.45) / (0.55×1.5 + 0.45)
= (0.825 − 0.45) / (0.825 + 0.45)
= 0.375 / 1.275
= 0.294
unitsToRuin = ln(ruinFraction) / ln(1 − risk)
= ln(0.01) / ln(0.99)
= −4.605 / −0.01005
= 458.2
RoR = ((1 − 0.294) / (1 + 0.294))^458
= (0.706 / 1.294)^458
= (0.546)^458
≈ 0%Result: Risk of ruin ≈ 0%. With a 29.4% edge fraction and 458 risk units to ruin, the probability of hitting zero is vanishingly small. This is why professional trend followers survive long losing streaks — the math is overwhelmingly in their favor at 1% risk.
45% win rate, 1.0 payoff, 3% risk, 200 trades
A strategy that wins less than half the time with a 1:1 payoff — and risks 3% per trade. Let's see why this combination is doomed.
p = 0.45, q = 0.55, b = 1.0, risk = 0.03
edgeFraction = (p×b − q) / (p×b + q)
= (0.45×1.0 − 0.55) / (0.45×1.0 + 0.55)
= (0.45 − 0.55) / (0.45 + 0.55)
= −0.10 / 1.0
= −0.10
edgeFraction ≤ 0 → RoR = 100%
Expected value per trade = p×b − q
= 0.45×1.0 − 0.55
= −0.10 R
Over 200 trades at 3% risk:
Each trade loses 0.10R on average.
The account bleeds ~0.3% per trade.
Variance ensures ruin arrives long before
the 200th trade.Result: Risk of ruin = 100%. A negative edge (−0.10R per trade) means the strategy loses money on average. No position-sizing trick can save a negative-edge system — ruin is mathematically guaranteed over enough trades. The only fix is improving the win rate or payoff ratio until edge > 0.
Risk of ruin, explained
Common questions about ruin probability, position sizing, the Kelly criterion and drawdown.
What is risk of ruin in trading?
Risk of ruin is the probability that your account balance reaches zero (or a ruin threshold you define) over a given number of trades, given your win rate, payoff ratio and risk per trade. It is the single most important survival metric in trading — a strategy with a positive edge can still blow up if you risk too much per position.
How is risk of ruin calculated?
This calculator uses two methods. The headline number uses the closed-form fixed-fractional approximation: edgeFraction = (p×b − q) / (p×b + q), unitsToRuin = ln(ruinFraction) / ln(1 − risk), and RoR = ((1 − edge) / (1 + edge))^unitsToRuin. The Run simulation button runs a seeded 10,000-trial Monte Carlo that walks through each trade, applies wins and losses to the balance, and counts how often the account hits the ruin line.
What risk percentage should I use per trade?
Most professional traders risk 0.5% to 2% of their account per trade. At 1% risk with a real edge, risk of ruin over a few hundred trades is typically well under 1%. At 5% risk, the probability of a significant drawdown rises sharply — even with a profitable strategy, larger position sizes dramatically increase the chance of hitting your ruin or drawdown threshold. The Optimal risk suggestion finds the highest risk that keeps ruin below 1%.
What is the Kelly criterion and how does it relate?
The Kelly criterion calculates the risk fraction that maximizes long-term geometric growth: f* = (p×b − q) / b. Full Kelly is aggressive and often produces a high risk of ruin, so traders usually use a fraction of Kelly (quarter or half Kelly). The optimal-risk suggestion in this calculator is a more conservative, ruin-bounded alternative.
What is a good payoff (win:loss) ratio?
Payoff ratio is your average win divided by your average loss. A 1.5 payoff means you win 1.5× what you lose on a losing trade. With a 55% win rate and a 1.5 payoff, your edge per trade is +0.3R — a strong strategy. Even a 40% win rate can be profitable with a 2:1 payoff, because the wins outweigh the frequent losses.
What is the difference between fixed-fractional and fixed-dollar risk?
Fixed-fractional risks a percentage of your current balance, so position size shrinks after losses and grows after wins — this automatically reduces ruin risk as the account drops. Fixed-dollar risks the same dollar amount every trade, which keeps risk constant in absolute terms but increases it as a percentage after losses. Fixed-fractional is the standard for compounding accounts; fixed-dollar is common in prop-firm evaluations with a fixed starting balance.
Ready to size your risk for survival?
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