Risk of ruin calculator
Risk of ruin is the probability that a losing streak wipes out your account before your edge pays off. Enter your win rate, reward-to-risk ratio, the percentage you risk per trade and your ruin threshold — get an estimated probability of ruin with a plain-English verdict. Free and instant. This is a simplified model, not a guarantee.
Verdict: —
How it works
risk of ruin# If expected value per trade ≤ 0, ruin is essentially certain.
EV per trade (in R) = (winRate × rewardRisk) − (lossRate × 1)
units_to_ruin = ruinThreshold% ÷ riskPerTrade%
risk_of_ruin ≈ ((1−p) ÷ p) ^ units_to_ruin # p derived from your edge
With a positive edge, ruin becomes exponentially less likely the more risk-units of capital you have between you and the ruin line — which is why risking 1% instead of 5% is so powerful. A negative expected value, by contrast, makes ruin a near-certainty given enough trades.
Risk of ruin is asymmetric: every other metric measures how well you do, this one measures whether you survive at all. A wiped-out account has no edge left to compound. When in doubt, risk less per trade.
Lowering your risk of ruin
- Risk less per trade — the single most effective lever. See the position sizing calculator.
- Improve the edge — raise win rate or reward-to-risk; check the expectancy calculator.
- Cap your size — never exceed the Kelly fraction; most pros bet a quarter of it.
- Define ruin honestly — set the threshold where you would actually stop, and respect it.
For a more faithful estimate on your own trade distribution, run a Monte Carlo simulation, which resamples your real trades thousands of times rather than relying on a closed-form approximation.
Frequently asked questions
What is risk of ruin?
Risk of ruin is the probability that a string of losses drives your account down to a level you define as 'ruined' — often a 50% or 100% loss of capital — before your edge can play out. Even a profitable system has a non-zero risk of ruin if you risk too much per trade. It is the question every position-sizing decision is really answering.
How do I lower my risk of ruin?
Three levers: risk less per trade, improve your edge (higher win rate or reward-to-risk), and define ruin at a less extreme threshold you would actually stop trading at. Of these, cutting the risk percentage per trade is the most reliable — halving your risk per trade reduces risk of ruin far more than it reduces expected growth.
Is this calculator exact?
No — it is a simplified sequential approximation that assumes fixed-fractional risk, independent trades and a constant edge. Real markets have correlated positions, fat tails and changing regimes, so treat the output as a directional sanity check, not a precise probability. Monte Carlo simulation on your real trade distribution gives a more faithful estimate.
What risk of ruin is acceptable?
Most conservative traders want risk of ruin well under 1%, and many aim for effectively zero by risking only 0.5–2% per trade with a genuine edge. Anything above a few percent should prompt you to cut risk per trade immediately — the downside (a wiped-out account) is not symmetric with the upside.