Risk of ruin calculator
How likely a run of losses takes your account down to the level you call ruin.
Short answer
Risk of ruin is the probability that a run of losses takes your account down to a level you can’t recover from – here a drawdown you choose, measured from the starting balance – before your edge plays out. Example: with a 40% win rate, an average win of 2 R, an average loss of 1 R and 2% risk per trade, the chance of losing 50% of the account within 500 trades is 0.69%; at 5% risk per trade the same system has a 14.38% chance. The calculator runs a Monte Carlo simulation of 10,000 paths in your browser with a fixed seed, so the same inputs always give the same number.
How the calculator works
- Monte Carlo (main result). The calculator plays 10,000 accounts through your number of trades. Each trade wins with your win rate and gains average win × risk; otherwise it loses average loss × risk. An account counts as ruined the first time its balance is at or below start × (1 − ruin %). The random numbers come from a fixed generator (mulberry32, seed 20261022), so the result is reproducible; the sampling error is about ±0.08 percentage points at 0.69%.
- Upper bound (closed form). For unlimited trades the calculator solves p·e−θa + (1 − p)·eθb = 1 for θ > 0, where p is the win rate and a and b are the win and the loss per trade as a share of the account (log returns when risk is a % of the current balance). Lundberg’s inequality from ruin theory then gives risk of ruin ≤ e−θu, with u the distance to ruin. In the example that bound is 0.76%.
- No positive edge, no bound. If the expectancy per trade is zero or negative (or, with risk on the current balance, the average log return), no θ exists and ruin over unlimited trades is certain: the bound shows 100%.
Risk of ruin by risk per trade and win rate
| Risk per trade | 30% win rate | 35% win rate | 40% win rate | 45% win rate | 50% win rate |
|---|---|---|---|---|---|
| 0.5% | 6.78% | 0.01% | < 0.01% | < 0.01% | < 0.01% |
| 1% | 61.09% | 2.36% | 0.02% | < 0.01% | < 0.01% |
| 2% | 89.41% | 19.34% | 0.69% | 0.01% | 0.01% |
| 3% | 94.73% | 34.71% | 3.57% | 0.28% | 0.03% |
| 5% | 97.59% | 54.35% | 14.38% | 3.32% | 0.89% |
| 10% | 99.02% | 74.73% | 37.47% | 18.08% | 8.56% |
Monte Carlo from the calculator above, 10,000 paths per cell with a fixed seed: average win 2 R, average loss 1 R, ruin = account 50% below the start, 500 trades, risk in % of the starting balance. At a 30% win rate the expectancy is negative (−0.1 R).
Fixed amount or a percentage of the current balance
Risking 2% of the starting balance means the same amount every trade, and 25 losses in a row end at −50%. Risking 2% of the current balance shrinks the stake after every loss, so it takes 35 losses in a row. That protects the account at moderate risk, but at high risk the opposite happens: wins grow the stake after losses have shrunk it, and the account drifts down (volatility drag). The table compares both.
| Risk per trade | Losses to −50%, fixed amount | Losses to −50%, current balance | Risk of ruin, fixed amount | Risk of ruin, current balance |
|---|---|---|---|---|
| 0.5% | 100 | 139 | < 0.01% | < 0.01% |
| 1% | 50 | 69 | 0.02% | < 0.01% |
| 2% | 25 | 35 | 0.69% | 0.16% |
| 3% | 17 | 23 | 3.57% | 1.92% |
| 5% | 10 | 14 | 14.38% | 12.04% |
| 10% | 5 | 7 | 37.47% | 46.98% |
40% win rate, 2 R to 1 R, 500 trades, 10,000 paths. With a fixed amount you always risk the same share of the starting balance; in % of the current balance the stake shrinks after losses and grows after wins.
Limits of this model
- Every win and every loss is the same size. Real results scatter around their averages; fat tails – a gap through the stop – raise the real risk.
- Trades are independent. Losing streaks that cluster in one market phase, or a strategy that stops working, are not modelled.
- The inputs are estimates. A 40% win rate measured over 50 trades could just as well be anywhere from about 26 to 54% (95% range); test the low end too.
- Costs must be inside the R values. Use average win and loss after fees and funding.
- Ruin is measured from the start, not from the peak. Prop firms with a trailing drawdown are stricter – check that floor with the drawdown calculator.
Where the inputs come from
Use your own statistics, not hopes: win rate and average win and loss in R from your journal, after fees. The expectancy calculator shows whether those numbers have an edge at all, and the position size calculator turns the risk per trade into a size. The risk/reward calculator turns a planned entry, stop and target into the average win in R, and what is a good profit factor shows which combinations of win rate and payoff hold up after costs. The inputs are defined in the glossary: win rate, average win and loss, risk per trade (1R) and maximum drawdown. Edgetrail calculates win rate, expectancy and average R per system from results after fees and shows each with its sample size. This calculator is arithmetic, not advice.
Updated:
Frequently asked questions
What is a good risk of ruin?
Most traders aim for a risk of ruin close to zero, because one ruin ends the account. The calculator gives no advice; it shows how strongly risk per trade, win rate and payoff move the number.
Why does risk per trade matter so much?
Because it sets how many losses in a row reach ruin. In the table, the system with a 40% win rate has a 0.69% risk of ruin at 2% per trade and 14.38% at 5%, with the same edge.
Can a profitable system still blow up?
Yes. A system with a 35% win rate at 2 R has a positive expectancy of +0.05 R, yet at 3% risk per trade 34.71% of the simulated accounts lost half their balance within 500 trades.
Why is the Monte Carlo result lower than the upper bound?
The simulation stops after your number of trades, while the bound covers unlimited trades and is an upper limit by construction. With 10,000 paths the simulation can sit slightly above the bound by chance.
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