Risk of Ruin Calculator
The odds your strategy blows up before it pays off.
How it works
Risk of ruin is the probability that a losing streak takes you below your threshold before the edge has time to compound. Because the reward-to-risk ratio is rarely 1:1, there is no clean closed-form answer — this tool simulates the strategy instead, which is exact rather than approximate.
The lever that matters most is risk per trade, and it is brutally non-linear. A positive-expectancy system risking 2% per trade may have a negligible chance of ruin; the same system at 10% can be more likely to blow up than to survive. Edge decides whether you win, sizing decides whether you are still there to collect.
Simulated over 10,000 runs with a fixed seed, so the number is stable while you type.
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How the Risk of Ruin Calculator works
Risk of ruin is the probability that a losing streak destroys your account before your edge has time to work. This calculator simulates your strategy trade by trade — win rate, reward-to-risk, position size and ruin threshold — and reports how often it ends badly.
Why this is simulated rather than solved
The textbook risk-of-ruin formula assumes even-money outcomes: every win and loss the same size. Real trading almost never looks like that — a 40% win rate with 2.5R winners is a perfectly good strategy, and the classical formula cannot describe it.
So this tool runs the strategy instead: ten thousand independent sequences, each trade resolved against your win rate, position sized as a fixed fraction of current equity. The result is exact for the model rather than an approximation of a different one. The generator is seeded, so the number stays stable while you adjust inputs.
Position size is the dominant lever
Take a genuinely profitable strategy — 45% win rate, 2R winners, expectancy +0.35R. Risk 1% per trade and ruin over 200 trades is essentially zero. Risk 5% and it becomes a real possibility. Risk 15% and the same profitable strategy is more likely to destroy the account than to grow it.
The edge never changed. Only the sizing did. This is the single most important idea in trading risk management: your edge determines whether you win, your position size determines whether you survive long enough to collect. Compare what you are risking against the Kelly fraction for the same inputs.
Reading the other outputs
The median outcome is the middle result across all runs — the typical experience, not the average, which a few extreme winners would distort. The worst 5% figure shows the fifth-percentile ending balance: one run in twenty finishes at least this badly. Most traders find that number more informative than the ruin probability itself.
Median maximum drawdown is the deepest peak-to-trough decline in a typical run. If it is larger than what you could tolerate without abandoning the strategy, your real risk of ruin is higher than the model says — because the model assumes you keep trading, and you would not.
FAQ
What counts as an acceptable risk of ruin?expand_more
Under 1% over a realistic trade horizon is the usual benchmark, and many professionals target far lower. Anything in double digits means the strategy is one bad stretch from ending, regardless of how good the expectancy looks.
Why does ruin stay possible with a positive expectancy?expand_more
Because outcomes are random in sequence. A positive edge tells you where the distribution is centred, not what order results arrive in. A long losing streak is improbable but never impossible, and if your size is large enough, one is sufficient.
What ruin threshold should I use?expand_more
50% is the common convention, on the reasoning that few traders continue with the same strategy after halving an account. If you would stop at 30%, use 30 — the honest threshold is the drawdown at which you would actually quit, not the point of literal zero.
Does this account for losing streaks clustering?expand_more
No. The simulation treats each trade as independent, which is the standard assumption. Real markets produce correlated losing periods — a strategy that fails in a particular regime fails repeatedly — so treat the output as a floor rather than a ceiling on your true risk.