Risk of Ruin Calculator with Monte Carlo Simulation
Every trading system has a probability of blowing up. This calculator estimates your risk of ruin — the chance that a series of losing trades will destroy your account before you can recover. It's the number that separates professional traders from gamblers.
Includes a Monte Carlo simulation showing how your balance might evolve across 100 random scenarios. Professional traders aim for less than 1% risk of ruin.
Your historical win percentage
Percentage of account risked per trade
Expected number of trades in period
Drawdown level considered "ruin"
Results
Risk of Ruin
0.66%
Monte Carlo Simulation (100 runs)
Shows account balance distribution over trades (starting at 100%)
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Calculation Methodology
Risk of ruin calculates the probability that you'll lose a specified portion of your account before recovering. This uses both theoretical formulas and Monte Carlo simulation to show realistic outcomes.
Key Insight: Risk of ruin is exponential. If you need 10 consecutive losses to hit ruin, your risk is (lossRate/winRate)^10. At 50% win rate, that's 1^10 = 100% risk. At 55% win rate, it's (0.45/0.55)^10 ≈ 0.3% risk. Small win rate improvements dramatically reduce ruin probability.
Learn more about risk management:
Position sizing guideExample Scenario
Setup: 55% win rate, 2% risk per trade, 100 trades, 50% ruin threshold
What this means: With these parameters, you have a 99.7% chance of surviving 100 trades without hitting 50% drawdown. The chart shows how account balance evolves over time in different scenarios.
Warning: Drop to 45% win rate with 5% risk, and ruin probability jumps to ~85%. Small parameter changes have huge impacts.
Common Mistakes & Warnings
- ⚠Overestimating win rate: Most traders think they win 60%+ but actually win 45-50%. Use your actual historical win rate, not your best-case estimate.
- ⚠Ignoring losing streaks: Even with 55% win rate, you'll have 5-7 loss streaks. If you risk 5% per trade, that's 25-35% drawdown in one streak.
- ⚠Risking too much: At 3%+ risk per trade, ruin becomes likely even with good win rates. Professional traders rarely risk more than 1-2%.
- ⚠Not accounting for fees: Trading fees reduce your actual win rate. A 55% gross win rate might be 52% after fees, significantly increasing ruin risk.
- ⚠Negative expectancy: If your win rate is below 50% with 1:1 risk:reward, you have negative expectancy. Ruin is guaranteed over enough trades.
Example Scenarios
Try these realistic scenarios to understand risk of ruin at different win rates and risk levels.
Scenario 1: Conservative Trader
High win rate with low risk per trade. Very safe approach with minimal ruin risk.
Step-by-Step Calculation:
- Losses to ruin: 50% ÷ 1% = 50 consecutive losses
- Win rate (p): 0.60, Loss rate (q): 0.40
- Since p > q: riskOfRuin = (0.40/0.60)^50 ≈ 0.0001%
- Safety margin: 99.9999%
- Expectancy: (0.60 × 1.5%) - (0.40 × 1%) = +0.5% per trade
What this means: With 60% win rate and 1% risk, your risk of hitting 50% drawdown is essentially zero (0.0001%). You'd need 50 consecutive losses, which is statistically impossible with a 60% win rate. This is extremely safe.
Scenario 2: Moderate Trader
Standard 55% win rate with 2% risk. Professional approach with acceptable risk.
Step-by-Step Calculation:
- Losses to ruin: 50% ÷ 2% = 25 consecutive losses
- Win rate (p): 0.55, Loss rate (q): 0.45
- Since p > q: riskOfRuin = (0.45/0.55)^25 ≈ 0.3%
- Safety margin: 99.7%
- Expectancy: (0.55 × 3%) - (0.45 × 2%) = +0.75% per trade
What this means: With 55% win rate and 2% risk, your risk of hitting 50% drawdown is 0.3%. You have a 99.7% safety margin. This is the standard professional approach - very safe but not overly conservative.
Scenario 3: Aggressive Trader
Lower win rate with high risk. Dangerous combination with significant ruin risk. ⚠️ High risk
Step-by-Step Calculation:
- Losses to ruin: 50% ÷ 5% = 10 consecutive losses
- Win rate (p): 0.45, Loss rate (q): 0.55
- Since p < q: riskOfRuin = 100% (negative expectancy)
- Safety margin: 0%
- Expectancy: (0.45 × 7.5%) - (0.55 × 5%) = -0.125% per trade
What this means: With 45% win rate and 5% risk, you have negative expectancy and 100% risk of ruin. You'd need only 10 consecutive losses to hit 50% drawdown, which is very likely with a 45% win rate. This strategy is unsustainable.
Edge Case Warning: With negative expectancy, ruin is guaranteed over enough trades. Even if you survive 100 trades, you'll likely hit ruin by trade 200 or 300. This combination of low win rate and high risk is a recipe for account destruction.
What If Variations
Explore how changing parameters affects risk of ruin:
What if my actual win rate is 5% lower than I think?
Using Scenario 2: Win rate drops from 55% to 50%. Risk of ruin jumps from 0.3% to 100% (negative expectancy). Small win rate differences have huge impacts on ruin probability.
What if I reduce risk from 2% to 1%?
Using Scenario 2: Losses to ruin increases from 25 to 50. Risk of ruin drops from 0.3% to 0.0001%. Halving risk dramatically reduces ruin probability (exponential effect).
What if trading fees reduce my win rate by 2%?
Using Scenario 2: Effective win rate becomes 53%. Risk of ruin increases from 0.3% to ~2%. Fees matter - they reduce your actual win rate and increase ruin risk.
Frequently Asked Questions
What is risk of ruin?
Risk of ruin is the probability that your account will hit a predefined drawdown level (ruin threshold) based on your trading statistics.
What's a safe risk of ruin?
Most professional traders aim for less than 1% risk of ruin. Anything above 5% is considered quite risky for serious capital.
How can I reduce my risk of ruin?
Lower your risk per trade, improve your win rate, or improve your reward-to-risk ratio. Even small improvements compound significantly.
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