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Risk of Ruin Calculator

See how likely your account is to be wiped out before your edge pays off.

How it is calculated

The tool uses the classic gambler's-ruin model, which assumes every trade wins or loses the same amount (1:1 reward to risk). Risk per trade and account size are both money amounts, not a percentage. The number of units is units = floor(account / risk), the number of straight losses the account can absorb. With p = win rate / 100 and q = 1 − p, ruin probability is (q / p)^units when p is above 0.5. At a 50 % win rate or lower the tool returns 100 %, because ruin is certain in the long run. The edge shown is p − q. A risk larger than the account returns no result. Winners larger than losers change the real odds and are not modelled.

Worked example

Win rate 55 %, risk per trade 2,000, account 20,000. Units = 20,000 / 2,000 = 10. p = 0.55, q = 0.45, so q / p = 0.8182 and the edge is 0.55 − 0.45 = 10.00 %. Ruin probability = 0.8182^10 = 13.44%. Cutting the risk to 200 per trade gives 100 units and a ruin probability that rounds to 0.00 %, with the same win rate and the same edge.

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Common mistakes

  • Entering risk per trade as a percentage (such as 2) instead of an amount: with an account of 20,000 that is read as 2 money units and gives 10,000 units.
  • Applying the result to a strategy whose winners and losers differ in size, because the model assumes 1:1.
  • Reading 0.00 % as impossible: it only means the probability is very small, not that ruin cannot happen.
  • Using a win rate from a few dozen trades: a small sample can overstate the edge badly.
  • Expecting a result below 100 % at a 50 % win rate or lower: with no edge the tool treats ruin as certain.

About this calculator

Risk of ruin is the probability that a trading account loses so much money it can no longer continue trading, given a fixed win rate, a fixed risk per trade, and a finite account size. A common closed-form estimate treats the account as a series of fixed-size bets and computes risk of ruin ≈ ((1 − edge) ÷ (1 + edge))^units, where edge is the win rate minus the loss rate and units is the account size divided by the risk taken per trade — meaning ruin risk drops sharply as either the statistical edge or the number of risk units available increases.

Traders and risk managers use this before finalizing a position-sizing rule, because a strategy with a genuinely positive expectancy can still have an uncomfortably high risk of ruin if each trade risks too large a fraction of the account — the math shows that cutting risk per trade from, say, 5% to 1% can reduce ruin probability far more than any realistic improvement in win rate.

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