Risk of ruin
Risk of ruin
Estimate the probability of ruin from win rate and risk per trade.
Risk of ruin
0.0 %
Same system, only the risk per trade changes
Risk of ruin is the probability that a trading strategy eventually wipes out the account behind it, even when every individual trade looks reasonable. This calculator estimates it from three numbers any trading journal can give you: your win rate, your average risk-reward ratio and the share of capital you put at risk on each trade.
The result reads as a probability: 2% means that roughly one path out of fifty ends with the account at zero, assuming the three inputs stay the same over time. What the calculation makes visible is how heavily risk per trade weighs: with identical statistics, moving from 1% to 3% risked per position can push the risk of ruin from near zero to serious. It describes a system as a whole, it does not predict any single trade.
The formula
The calculation starts with the statistical edge: A = win rate × risk-reward ratio - loss rate. If A is zero or negative, the system loses money on average and ruin is certain in the long run, so the tool shows 100%. If A is positive, the risk of ruin equals ((1 - A) / (1 + A)) raised to the power of 100 divided by the risk per trade · that exponent is the theoretical number of consecutive losing units between the account and zero. This is the classic fixed-fraction approximation found in money management textbooks.
A worked example
Take the calculator's prefilled system: 45% win rate, 1.5 win/loss ratio. Its edge is A = 0.45 × 1.5 - 0.55 = 0.125, and the base of the formula is (1 - 0.125) / (1 + 0.125) ≈ 0.778. At 2% risked per trade, it takes 50 consecutive full losses to reach zero: 0.778 to the power of 50 gives a 0.0003% risk of ruin. At 5%, the exponent drops to 20 and the result climbs to 0.66%. At 10%, the exponent drops to 10: 8.1%. Multiplying the risk by five did not multiply the ruin by five · it multiplied it by more than 23,000. That is exactly what an exponent does, and it is why the curve looks like a hockey stick, not a slope.
Risk of ruin by risk per trade
The calculator's prefilled system (45% win rate, 1.5 ratio), recomputed with the formula on this page for six risk levels.
| Risk per trade | Full losses to zero | Risk of ruin |
|---|---|---|
| 0.5% | 200 | ≈ 0% |
| 1% | 100 | ≈ 0% |
| 2% | 50 | 0.0003% |
| 3% | 33.3 | 0.023% |
| 5% | 20 | 0.66% |
| 10% | 10 | 8.1% |
What the number does not tell you
The model assumes a frozen world: the same win rate, the same ratio and the same percentage risked across hundreds of independent trades, which no real account guarantees. It also defines ruin as losing 100% of the capital, yet a real account dies well before that · FTMO, for instance, closes a funded account at a 10% total loss, and a broker cuts positions at a margin call. The displayed figure therefore underestimates the probability of losing an account bound by such rules. Finally, it says nothing about the path: two systems with the same risk of ruin can put you through very different losing streaks.
The classic mistake
When the edge is thin, the formula is extremely sensitive to its inputs. On the prefilled system, at 2% risk: a 45% win rate gives 0.0003% ruin, 43% gives 0.05%, 41% gives 8.2% and 40% gives 100%. Five points of win rate separate near zero from certainty · yet a win rate measured over 20 trades easily moves by five points through pure chance. The mistake is not running the calculation, it is feeding it a sample that is too short and trusting the result to the decimal.
Frequently asked questions
Why does the result show 100%?
Because the combination you entered has no statistical edge: win rate × risk-reward ratio does not exceed the loss rate. In that case the average trade loses money, and repetition makes losing the account inevitable over time, whatever the risk per trade. The calculator states it plainly instead of displaying a small, reassuring number.
Can the risk of ruin really be 0%?
The number can get so small that it rounds to 0.0%, but it remains a model: it assumes your win rate and risk-reward ratio stay constant, which never quite holds in live conditions. Losing streaks, market changes and lapses in discipline are not in the formula. A very low result describes the strength of the inputs, it is not a guarantee.
How is this different from maximum drawdown?
Drawdown measures a decline from an equity peak that has already happened or been simulated; risk of ruin estimates the probability of reaching the point where everything is gone. They complement each other: a system can show moderate drawdowns and still carry a high risk of ruin when the risk per trade is oversized. In this model, ruin means losing 100% of the capital.
Does this calculation apply to a prop firm account?
Partially. The model defines ruin as losing 100% of the capital, whereas a funded account stops well before that: FTMO, for example, closes an account at a 10% total loss. Reaching −10% is far more frequent than reaching zero, so the figure shown here underestimates the probability of losing an account bound by that rule. The calculation remains useful for comparing risk levels against each other · its ruin threshold, however, is not a prop firm's.
Does the win rate matter less than the risk per trade?
Both weigh heavily, but not on the same floor of the formula. The win rate and the ratio set the base; the risk per trade sets the exponent, 100 divided by the risk. Going from 2% to 10% risked drops that exponent from 50 to 10, and a base close to 1 raised to a power five times smaller gives a result thousands of times larger. The practical difference: your win rate is partly decided by the market · your risk per trade is set by you alone, to the decimal.
See also
Drawdown
Enter a loss percentage and see the exact gain required to get back to breakeven. Understand why a 50% drawdown takes a 100% gain to erase, instantly.
Portfolio risk
Add up the risk on all your open positions and see it as a percentage of your account. A simple way to check your total exposure, right in your browser.
Position size
Work out how many lots to open from your account size, risk percentage and stop loss distance in pips. Free, no sign-up, runs entirely in your browser.