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.
How risk of ruin works
Risk of ruin estimates the chance of reaching a major loss threshold. It is driven by edge, trade frequency and risk per trade.
Lower risk per trade gives a strategy more room to survive normal losing streaks.
Risk of ruin formula for trading
Start with trading edge: (win rate × average win) − (loss rate × average loss). Positive expectancy helps, but it does not remove the chance of a damaging losing sequence.
There is no single closed-form formula here that honestly captures fixed-fraction compounding, a chosen drawdown floor, and a limited trade horizon. This calculator therefore runs 1,000 paths 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 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.
Related trading calculators
FAQ
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.