Risk of Ruin Calculator
What is the probability of blowing up your trading account? Input your win rate, risk/reward ratio, and risk per trade to find out.
Your Trading Statistics
Percentage of trades that are profitable
Average winning trade ÷ Average losing trade
Percentage of account risked on each trade
Strategy Summary
Total Risk of Ruin (100% Drawdown)
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Probability by Drawdown Level
Quick Scenario Comparison
| Scenario | Win % | R:R | Risk/Trade | Ruin % |
|---|---|---|---|---|
| Conservative Pro | 50% | 2:1 | 1% | 100.00% |
| Aggressive Scalper | 65% | 1:1 | 3% | < 0.01% |
| Swing Trader | 45% | 2.5:1 | 2% | 100.00% |
| Gambler (No Edge) | 50% | 1:1 | 5% | 100.00% |
| ⟶ Your Strategy | 55% | 1.5:1 | 2% | < 0.01% |
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Understanding Risk of Ruin
What is Risk of Ruin?
Risk of Ruin (RoR) is a statistical measurement of the probability that a trader will lose a specified percentage of their account before achieving their profit target. It answers the critical question: "Given my trading strategy's win rate, reward-to-risk ratio, and position sizing — what are the chances I go broke?"
The Formula
The mathematical formula uses the concept of a random walk with absorbing barriers. For a simplified model: RoR = ((1 - Edge) / (1 + Edge))^(Capital Units), where Edge = (Win% × Avg Win) - (Loss% × Avg Loss), and Capital Units = Account Size / Risk Per Trade.
Key Insights
- ▸A 1% risk per trade with a 50% win rate and 2:1 R:R gives a near-zero risk of ruin
- ▸Increasing risk per trade from 2% to 5% can exponentially increase your ruin probability
- ▸Win rate matters less than the risk/reward ratio for long-term survival
- ▸Professional traders typically aim for a risk of ruin below 1%
- ▸Even a profitable strategy can blow up with improper position sizing
Deep Dive into Risk of Ruin and Account Survival
The Mathematics of Account Blowups
Many traders focus entirely on finding a strategy with a high win rate, ignoring position sizing. However, mathematics dictates that even a profitable strategy will eventually blow up an account if the risk per trade is too high. This is due to 'consecutive losing streaks.' If you risk 10% per trade, it only takes 10 consecutive losses to blow the account. Statistically, even a strategy with a 60% win rate will eventually experience a 10-trade losing streak if traded long enough.
Drawdown vs. Risk of Ruin
Drawdown is a normal part of trading; it is the peak-to-trough decline in your account balance. Risk of Ruin, however, is the probability of hitting an unrecoverable drawdown. The threshold for 'ruin' depends on the trader. For a retail trader, ruin might be losing 100% of the account. For a prop firm trader, ruin is hitting the 10% maximum drawdown limit. The math applies the same way to both scenarios.
The Asymmetry of Losses
Recovering from losses requires an asymmetrical return. If you lose 10% of your account, you need an 11% gain to break even. If you lose 50%, you need a 100% gain just to get back to your starting balance. This is why professional traders are obsessed with keeping drawdowns small, typically capping their risk per trade at 1% or 2% maximum.
Frequently Asked Questions
What is an acceptable Risk of Ruin percentage?
Professional traders generally aim for a Risk of Ruin of less than 1% (ideally 0.1% or lower). If your calculator shows a Risk of Ruin above 5%, your position sizing is too aggressive for your strategy's metrics.
How can I lower my Risk of Ruin?
You can lower your Risk of Ruin by adjusting three variables: 1) Decrease your risk percentage per trade (e.g., move from 2% to 1%). 2) Improve your win rate through better trade selection. 3) Increase your risk-to-reward ratio by letting winners run or tightening stop losses.
Why does my Risk of Ruin increase so fast when I increase risk per trade?
Risk of Ruin scales exponentially, not linearly. Increasing your risk from 1% to 2% might increase your ruin probability from 0.1% to 5%. Increasing it to 5% might spike your ruin probability to 40%. The math severely punishes overleveraging.
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