Risk of Ruin Calculator

There's no universally agreed threshold, but many risk-conscious traders aim to keep the estimated probability of a serious drawdown in the low single digits by controlling risk per trade. What counts as "serious" is itself a personal judgement tied closely to your own drawdown tolerance some traders define it as a 30% decline, others as 50% so the safe threshold depends partly on which ruin level you're measuring against. A useful habit is checking the calculation at a couple of different ruin thresholds rather than relying on a single number, since a strategy might show very low risk of hitting a 50% drawdown while still carrying a more meaningful probability of hitting a 20% one.

Yes a strategy with a genuine edge can still carry meaningful risk-of-ruin if the risk percentage per trade is set too aggressively relative to its actual win rate. This is one of the more counterintuitive findings this calculator can reveal: two identical strategies with the same win rate and risk-reward ratio can show dramatically different risk-of-ruin figures purely based on how much of the account is risked per trade. It's a strong illustration of why risk-per-trade, not strategy quality alone, is often the deciding factor in whether an account survives long enough to realise its edge.

Yes, the underlying maths specifically models the probability of extended losing streaks given your win rate and risk settings, since it's precisely these streaks not any single loss that typically drive an account into serious drawdown territory. The Monte Carlo simulation used here generates thousands of randomised sequences of trades and checks, for each one, whether the account balance ever reaches the ruin threshold at any point during the sequence, which naturally captures the effect of streaks of varying length occurring by chance.

It's worth rechecking whenever your win rate, risk-reward ratio, or risk-per-trade percentage changes meaningfully, since all three inputs directly affect the resulting probability. A reasonable habit is to recalculate every time you update these figures from a growing trading journal, or whenever you're considering a deliberate change to your risk-per-trade setting, since that's exactly the kind of decision this calculation is designed to inform before you make it rather than after.

A drawdown calculation, like our Drawdown Calculator, measures a decline that has already happened the gap between a peak account value and a later, lower value. Risk of ruin instead looks forward, estimating the probability that a decline of a chosen severity will ever occur, given your strategy's win rate, risk-reward ratio, and risk per trade, before any of those trades have actually happened. Drawdown is a historical, backward-looking measurement; risk of ruin is a probabilistic, forward-looking estimate. Both are useful, but they answer fundamentally different questions one describes what did happen, the other estimates what plausibly could happen given your current settings.

The core risk-of-ruin calculation, as implemented here, works from a simplified model of fixed win rate, fixed risk-reward ratio, and fixed risk percentage per trade, which doesn't directly model the more complex, variable outcomes a trailing stop can produce. In practice, a trailing stop-loss tends to change your effective win rate and average risk-reward ratio compared to a fixed stop and fixed target, since it can turn some trades that would have hit a fixed target into smaller wins, and some that would have hit a fixed stop into break-even or small-loss outcomes instead. If you trade primarily with trailing stops, the most accurate way to estimate risk of ruin is to calculate your actual historical win rate and average risk-reward ratio from a logged sample of trailing-stop trades, then use those real figures as inputs here, rather than assuming figures based on a fixed-stop mental model.

Rather than relying purely on a single theoretical formula, this calculator runs a live simulation directly in your browser generating 1,500 separate, randomised sequences of 300 trades each, using your entered win rate, risk-reward ratio, and risk percentage to determine the outcome of each simulated trade. For every sequence, it tracks the running account balance and checks whether it ever falls to or below your chosen ruin threshold at any point during those 300 trades. The percentage of the 1,500 sequences that hit the threshold at least once becomes the estimated risk-of-ruin figure. Because this uses genuine random simulation rather than a single closed-form approximation, the result will vary slightly each time you run it this is expected statistical noise from the simulation process, not an error, and running it a few times to see the rough range it settles into can be more informative than treating any single run as a precise, fixed answer.

The right threshold depends on what level of decline you'd personally consider a serious problem requiring you to stop and reassess, rather than a normal part of trading variance. Many traders use 20-30% as a threshold representing a drawdown severe enough to warrant a genuine strategy review, since psychologically and practically, declines beyond this range become progressively harder to recover from and often coincide with a trader's confidence and discipline beginning to erode. A 50% threshold represents a more extreme, harder-to-recover-from scenario, useful for understanding tail risk but less useful as an everyday early-warning level, since by the time an account is anywhere near 50% down, most traders will have already made significant changes long before reaching it. Running the calculation at a couple of different thresholds say both 20% and 40% can give a more complete picture than relying on a single number.

In a strict theoretical sense, as long as there's any non-zero probability of a losing trade, there's technically always some non-zero probability of eventually reaching any given drawdown threshold if enough trades are simulated risk of ruin approaches, but never mathematically reaches, exactly zero for a finite number of trades with a real chance of loss on each one. In practice, this calculator will often display a rounded 0.0% result for a positive-edge strategy with modest risk per trade over a limited number of simulated trades, simply because the actual probability is small enough not to show up meaningfully at that decimal precision within 1,500 simulated sequences of 300 trades not because the true risk is mathematically zero. Increasing the number of trades simulated (a longer trading career) or the risk percentage per trade will generally reveal a small non-zero risk-of-ruin figure, even for a strategy with a strong, genuine edge.

Risk of ruin is disproportionately sensitive to risk per trade compared to win rate, which often surprises traders encountering this calculation for the first time. Doubling your win rate from, say, 30% to 60% might meaningfully reduce risk of ruin, but doubling your risk per trade from 1% to 2% at the same win rate tends to increase risk of ruin far more sharply often by several multiples rather than a proportional doubling. This asymmetry exists because risk per trade compounds directly against your account balance on every single loss, while win rate only shifts the probability of encountering losses in the first place. A losing streak of a given length produces a dramatically larger drawdown at 2% risk per trade than at 1%, and losing streaks of any given length are considerably more common than most traders' intuition suggests, given ordinary statistical variance even for a strategy with a strong long-run edge. Try the experiment yourself using the calculator above: hold win rate and reward-to-risk fixed, and simply move risk-per-trade between 0.5%, 1%, 2%, and 4% the resulting jump in simulated risk of ruin at each step tends to be considerably larger than most traders expect before actually running the numbers. This is the core mathematical reason experienced risk managers tend to treat risk-per-trade as the single most important lever for controlling risk of ruin, ahead of trying to improve win rate or risk-reward ratio, both of which are also considerably harder to improve reliably than simply choosing a smaller risk percentage per trade.

The Martingale strategy doubling position size after every loss, on the reasoning that an eventual win will recover all prior losses plus a profit is frequently used as a cautionary extreme case in risk-of-ruin discussions because it represents one of the most dangerous possible risk-per-trade approaches, despite superficially appearing to guarantee eventual profit. The flaw is that position size grows exponentially with each consecutive loss, meaning a losing streak of even moderate length requires an enormous, rapidly escalating position size to maintain the doubling pattern a streak long enough to exhaust available capital or hit a broker's maximum position size limit becomes a near-certainty given enough trades, at which point the strategy fails catastrophically rather than gradually. Because risk of ruin is so sensitive to risk-per-trade, as covered elsewhere on this page, a strategy that deliberately increases risk-per-trade after losses is close to a worst-case design from a risk-of-ruin perspective, even though each individual doubling decision can feel locally reasonable in the moment after all, the position has never yet failed to recover on the very next trade, right up until the one time it doesn't. This is precisely why risk-of-ruin calculations and Martingale-style position sizing are so often discussed together the calculation makes explicit, in probability terms, exactly why the strategy is as dangerous as risk-conscious traders warn, turning a vague warning into a concrete, quantified probability. See What Is the Martingale Strategy and Why Is It Dangerous? for a fuller breakdown of the mechanics.

A practical approach is to treat risk of ruin as a check performed after you already have a reasonable estimate of your strategy's win rate and risk-reward ratio, ideally from a genuine sample of logged trades rather than a hopeful guess. Start with a risk-per-trade figure you're already inclined toward, commonly somewhere in the 0.5-2% range, and run the calculation at that setting alongside your win rate and risk-reward figures. If the resulting risk-of-ruin figure feels uncomfortably high relative to your personal tolerance for drawdown, the most direct lever to pull is reducing risk-per-trade rather than trying to change your win rate or risk-reward ratio, both of which are considerably harder to improve reliably and are largely determined by your strategy and market conditions rather than a simple input adjustment. It's worth running this check periodically as your logged trading history grows and your actual win rate and risk-reward figures become more reliable, rather than treating a single calculation done early on as a permanent, unchanging verdict inputs based on 20 trades deserve less confidence than the same calculation repeated once you have 100. Pairing this with our Kelly Criterion Calculator can also help, since Kelly provides a mathematically optimal risk-per-trade ceiling given the same inputs, against which you can compare whatever risk percentage produces a risk-of-ruin figure you're personally comfortable with the two tools approach the same underlying trade-off between growth and safety from complementary angles. See What Is Risk of Ruin and Why Should I Care? for more background on why this specific metric has become a standard part of professional risk management.

Many professional risk frameworks aim to keep risk of ruin below 1-5%, depending on personal risk tolerance, a figure significantly above this generally suggests position sizing needs to be reduced relative to the strategy's win rate and risk-reward.

Not automatically, if you're sizing positions as a fixed percentage of a growing account, your risk of ruin as a probability remains roughly consistent, it's your risk parameters, not just account size, that primarily determine this figure.

Yes, particularly if position sizing is too aggressive relative to the strategy's win rate and risk-reward statistics, a genuinely profitable strategy can still carry uncomfortably high risk of ruin if oversized.

Often dramatically, risk of ruin is highly sensitive to position sizing, even modest reductions in risk per trade can meaningfully lower your calculated probability of blowing up the account.

It's a statistical probability based on your inputs, not a specific prediction of what will happen, it tells you the mathematical likelihood of ruin given your current win rate, risk-reward, and position sizing, assuming those statistics hold.