Free trading tools
Risk of Ruin Calculator for Trading
Estimate the chance of hitting a chosen drawdown across 1,000 simulated trade paths, then compare how risk per trade changes survival odds.
Best for
Testing whether risk per trade is too high.
What you get
Estimated ruin chance, survival chance, expected result and account floor.
Not for
Guaranteeing account survival.
Formula
The calculator simulates 1,000 trade sequences from win rate, average win/loss, risk per trade, trade count and your chosen loss threshold.
Example
Compare the same strategy at 0.5%, 1% and 2% risk per trade to see how position sizing changes survival odds.
Hexaplan verdict
Use it before increasing risk.
What is risk of ruin in trading?
Risk of ruin is the chance that a trading account falls to a loss level you cannot or will not trade through, such as a 30% drawdown or a prop firm's maximum loss, before it has time to grow.
It is driven by three things: your edge (win rate and payoff), how much you risk per trade, and how many trades you take. Lower risk per trade gives a strategy more room to survive normal losing streaks.
Risk of ruin formula for trading
The textbook risk of ruin formula for equal-size wins and losses is ((1 − A) / (1 + A))^U, where A is your advantage (win rate minus loss rate) and U is the number of risk units in the account. With a 55% win rate, A is 0.10. With 20 units (5% risk per trade), the formula gives (0.9 / 1.1)^20, or about 1.8%.
That formula assumes every trade wins or loses the same fixed amount and that ruin means losing everything. Real trading has a payoff ratio, risk as a percentage of a changing balance, a drawdown limit well above zero and a limited number of trades.
To calculate risk of ruin for those conditions, start with edge: (win rate × average win) − (loss rate × average loss). Then simulate. This calculator runs 1,000 trade paths with your inputs and reports the share that touch your ruin threshold.
How to use this calculator
- Enter win rate.
- Enter average win and loss.
- Choose risk per trade.
- Set the ruin threshold.
- Reduce risk if ruin chance is too high.
Worked example
Suppose a $10,000 account wins 45% of trades, averages 1.5R per winner, loses 1R per loser and risks 1% per trade. If a 30% drawdown counts as ruin, the account floor is $7,000.
The calculator runs 1,000 repeatable trade sequences and reports how many touch that floor within the selected trade count. Change only risk per trade to compare position-sizing decisions on the same strategy.
What is a good risk of ruin?
There is no official cut-off. Many traders aim to keep the estimated chance of hitting their stop-trading level below about 1% to 5%, and lower still when the account is hard to replace.
If the estimate is higher, cut risk per trade first. Halving risk per trade usually lowers risk of ruin far more than a small improvement in win rate.
What changes risk of ruin
- Lower risk per trade usually reduces ruin probability fastest.
- A higher payoff ratio gives losing streaks more room to recover.
- More trades create more opportunities to reach the loss threshold.
- A tighter prop firm drawdown limit makes the same strategy more fragile.
Model assumptions and limits
The simulation assumes a fixed win rate, average winner, average loser and fractional risk. It does not model changing market regimes, correlated losses, slippage, skipped stops or execution mistakes.
Use the output to compare risk settings, not as a promise that an account will survive. Re-run the estimate when your real trade sample changes materially.
Common mistakes
- Using optimistic inputs.
- Ignoring losing streaks.
- Risking too much per trade.
- Changing size after losses.
- Thinking a profitable strategy cannot fail.
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FAQ
What is risk of ruin in trading?
The chance that your account falls to a loss level where you have to stop, such as a set drawdown or a prop firm's maximum loss, based on your win rate, payoff and risk per trade.
How do you calculate risk of ruin?
For equal-size wins and losses the textbook formula is ((1 − A) / (1 + A))^U, with A as win rate minus loss rate and U as the number of risk units in the account. For percentage risk, a payoff ratio and a drawdown limit, a simulation like this calculator gives a more honest estimate.
What is a good risk of ruin?
There is no official number. Many traders aim to stay below about 1% to 5% for the loss level that would make them stop, and lower when the account is hard to replace.
Does low risk of ruin mean I am safe?
No. It only reflects the inputs. Real trading can be worse.
What ruin threshold should I use?
Use a level that would force you to stop or reset the strategy.
How do I lower risk of ruin?
Lower risk per trade, improve execution and avoid rule breaks.
Is the result an exact probability?
No. It is a Monte Carlo estimate based on simplified, repeatable win and loss assumptions. Real trading outcomes can be worse.