What the risk of ruin calculator does
Risk of ruin is the probability that a run of losing trades takes your account down to a level you cannot or will not trade from. Here "ruin" is a loss you define — 30% of the starting balance, 50%, or the maximum loss of a prop-firm challenge — rather than a literal zero. The calculator works out that probability from four numbers: win rate, reward-to-risk, risk per trade and the ruin level. It gives the chance within a number of trades you choose and the long-run chance with no trade limit.
How to use it
- Enter your win rate and your average reward-to-risk in R: an average win of twice the amount risked is 2R, and every loss counts as 1R.
- Enter your risk per trade in percent and the ruin level: the share of the starting balance whose loss you would call ruin.
- Enter the number of trades to look ahead, up to 5,000.
- Choose how the risk is sized. "% of balance" recalculates it on the current balance after every trade, so losses shrink as the account falls. "Fixed $ amount" risks the same dollar amount every time: the chosen percentage of the starting balance.
The panel shows the probability of ruin within your horizon, within 100 and 500 trades, and in the long run, followed by the number of consecutive losses that reach the ruin level, the expectancy per trade and the typical growth per trade.
The formula
Each trade moves the account up or down by a fixed step, and ruin is the first time the account touches the ruin line. With risk r, reward R (in multiples of the risk) and ruin level D:
% of balance: win → equity × (1 + r × R)
loss → equity × (1 − r)
fixed $: win → equity + start × r × R
loss → equity − start × r
ruin: equity ≤ start × (1 − D)
losses in a row to ruin (% of balance) = ln(1 − D) ÷ ln(1 − r), rounded up
Because the account's level depends only on how many trades were won and lost, the calculator tracks the exact probability of every possible number of wins, trade by trade, and removes the paths that touch the ruin line. Nothing is sampled, so the result is exact for these assumptions and the same every time. For the long-run figure it follows the account for at least 3,000 trades and bounds the remaining risk of the surviving paths with the Lundberg exponent λ, the positive root of:
W × e^(−λ × u) + (1 − W) × e^(λ × d) = 1
where u and d are the size of a winning and a losing step (in log terms with % sizing). When the median growth per trade is zero or negative, no such root exists: given enough trades, ruin is certain. With a 1:1 payoff and fixed-dollar risk, the result matches the classic gambler's-ruin formula ((1 − W) ÷ W)^N, where N is the number of losses that reach the ruin level.
Worked example
A strategy wins 40% of the time with an average win of 2R, so its expectancy is 0.4 × 2 − 0.6 = +0.20R per trade. Ruin is a 30% loss of the starting balance, and the risk is 2% of the current balance per trade:
- 18 losses in a row reach ruin: ln(0.70) ÷ ln(0.98) = 17.7, rounded up, and 0.98^18 ≈ 0.695 is a 30.5% loss
- Risk of ruin within 100 trades: 2.30%
- Within 1,000 trades: 3.96% — and the long-run figure is the same, because nearly all ruin happens early, before the edge has built a cushion
Now change only the risk per trade:
| Risk per trade | Ruin within 100 trades | Ruin within 1,000 trades |
|---|---|---|
| 0.5% | < 0.01% | < 0.01% |
| 1% | 0.01% | 0.12% |
| 2% | 2.30% | 3.96% |
| 3% | 9.69% | 12.68% |
| 5% | 28.44% | 32.86% |
| 10% | 59.55% | 66.25% |
The edge is the same on every line; only the size changes. Going from 2% to 1% per trade cuts the risk of ruin within 1,000 trades more than thirtyfold.
Reading the result
- A positive expectancy is not enough. At a high enough risk per trade, losses compound faster than gains — a 50% loss needs a 100% gain to recover — and the typical account shrinks even though the average trade makes money. The calculator warns you when the median growth per trade turns negative.
- Most ruin happens early. With a real edge, the account drifts away from the ruin line over time, so the first few hundred trades carry most of the risk.
- These are odds for your numbers, not your future. Real win rates drift, trade results vary in size, costs eat into the edge and losses cluster in some market phases. Treat the output as a floor for the real risk and size with a margin of safety.
To see the full range of equity curves behind the same inputs, run them through the Monte Carlo trading simulator. To compare your risk with the growth-optimal one, use the Kelly criterion calculator.
Common mistakes
- Defining ruin as zero. With % sizing the balance never reaches exactly zero. What matters is the drawdown at which you would stop trading, which is usually far below 100%.
- Using an optimistic win rate. When the edge is thin, a few points of win rate change the result a lot. Run the calculator again with a lower win rate than your backtest shows.
- Ignoring prop-firm limits. A challenge with a 10% maximum loss is ruined at 10%, not 50%. Set the ruin level to match — the prop firm calculator shows how many losses fit inside the limits.
- Raising risk after a drawdown. It moves you down the table above exactly when the account can least afford it.