Risk of Ruin Calculator
Estimate the chance a strategy hits a chosen drawdown threshold, by simulating 10,000 sequences of trades.
This risk of ruin calculator estimates the chance that a series of trades produces a drawdown severe enough to end the account, given a fixed risk per trade and a system's win rate and payoff ratio. What comes back is a drawdown probability, not a prediction.
Formula: Monte Carlo simulation of fixed-fractional risk over 10,000 sequences
Your figures
A win returns this multiple of the amount risked.
Percentage of the current balance risked on each trade.
Measured from the starting balance, not from the sequence's own peak. A sequence that falls this far is stopped and counted as ruined.
Length of each simulated run.
Results
Estimated risk of ruin
0.2%
of reaching a 50% drawdown within 200 trades
- Expectancy per trade
- +0.125 R
- Median ending balanceAs a percentage of the starting balance, across all simulations.
- 155.0%
- Average worst drawdown
- 23.8%
- Simulations run
- 10,000
What this means
Across 10,000 simulated sequences of 200 trades, 0.2% reached the drawdown threshold. Halving the risk per trade typically reduces this figure sharply, because ruin depends on how many consecutive losses the account can absorb. This is the output of a model, not a forecast.
- Assumes every trade is independent and that the win rate and payoff ratio stay constant. Real results cluster and change over time.
- Uses a fixed random seed, so identical inputs always produce the same figure.
Estimated risk of ruin: 0.2%
The link reopens this calculator with the same numbers. Nothing you enter is sent to a server.
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About the Risk of Ruin calculation
The insight it captures is that even a strategy with a genuine edge can be wiped out by an unlucky run if each trade risks too much. Edge determines the direction of the long-run drift; risk per trade determines whether the account survives long enough to experience it.
The probability of ruin is estimated here by a Monte Carlo trading simulation rather than by formula. Closed-form risk-of-ruin equations assume even-money bets at a fixed stake — conditions that do not hold for fixed-fractional sizing with an asymmetric payoff.
Risk of Ruin formula
Monte Carlo simulation, 10,000 sequences:
for each sequence:
balance = 1
repeat for the trade count:
risked = balance × risk per trade
win → balance += risked × payoff ratio
loss → balance −= risked
if balance ≤ ruin threshold → ruin, stop
risk of ruin = sequences that hit ruin ÷ 10,000
expectancy (R) = (win rate × payoff ratio) − (1 − win rate)- payoff ratio
- What a win returns as a multiple of the amount risked.
- ruin threshold
- The drawdown that counts as ruin, e.g. losing 50% of the account.
- fixed-fractional
- Risking a constant percentage of the current balance, so position size falls as the account shrinks.
Risk is taken on the current balance, not the starting balance. After losses the amount risked falls, which slows the decline — a property of fixed-fractional sizing that closed-form ruin formulas do not capture.
Ten thousand sequences are run with a fixed random seed, so the same inputs always produce the same figure. The result is reproducible rather than shifting on each calculation.
Expectancy in R multiples is shown alongside. When it is zero or negative, a severe drawdown becomes near-certain given enough trades, and reducing risk per trade delays that outcome rather than preventing it.
Risk of Ruin: a worked example
A system winning 45% of trades at a 1.5:1 payoff, risking 2% per trade, over 200 trades, with a 50% drawdown counted as ruin.
- Expectancy per trade(0.45 × 1.5) − 0.55 = +0.125 R
- Risk per trade2% of the current balance
- Ruin thresholdBalance falls to 50% of the start
- Simulations10,000 sequences of 200 trades
The calculator reports the share of those 10,000 sequences that reached the threshold. Raising the risk per trade to 5% while leaving everything else unchanged increases that share substantially — the edge is identical, only the exposure changed.
How to use the Risk of Ruin calculator
- Enter the win rate and the reward-to-risk ratio of the system, ideally from a trading record rather than an estimate.
- Set the risk per trade as a percentage of the account.
- Set the drawdown that counts as ruin. 50% is a common convention; use whatever level would genuinely end your participation.
- Set the number of trades per sequence to roughly what you expect to place over the period you care about.
- Change one input at a time to see what each contributes. Risk per trade usually has the largest effect.
Limitations of the Risk of Ruin calculator
Every calculation makes assumptions. These are the ones that matter here.
- Assumes every trade is independent and identically distributed. Real results cluster, and market conditions shift.
- Assumes the win rate and payoff ratio stay constant. Estimating them from a small sample makes the output correspondingly uncertain.
- Uses a single fixed payoff per win. Systems with variable outcome sizes will behave differently.
- This is a model, not a forecast. It shows what these assumptions imply, not what will happen.
Frequently asked questions about Risk of Ruin
Why simulate instead of using a risk of ruin formula?
The standard closed-form risk-of-ruin formulas assume even-money bets at a fixed stake. Fixed-fractional sizing with an asymmetric payoff has no simple closed form, so simulating the system directly is both more accurate and easier to explain.
Are the results the same each time?
Yes. The simulation uses a fixed random seed, so identical inputs always produce an identical figure. Changing any input changes the result.
Why does risk of ruin fall so sharply when I halve the risk per trade?
Ruin requires a particular run of losses, and halving the risk roughly doubles the number of consecutive losses the account can absorb. The probability of a longer losing run falls geometrically, not linearly.
What if my expectancy is negative?
Then ruin becomes near-certain given enough trades, whatever the position size. Reducing risk per trade extends how long the account lasts; it does not change the direction of travel.
How many trades should I simulate?
Roughly the number you expect to place over the horizon you care about. A day trader might use 1,000; a swing trader placing a few trades a week might use 200. Longer sequences give more opportunity for a ruinous run.
Last reviewed . See our methodology and editorial policy.
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