Risk of Ruin Calculator
Risk of ruin is the probability that a run of losses drops your account below a level you cannot recover from, even when the strategy has a positive average edge. It is set by variance, not the average return: stake too large a fraction of the account per trade and an ordinary losing streak can wipe you out before the edge has time to show.
This tool estimates it by Monte-Carlo simulation — thousands of trade sequences drawn from your win rate, average win and loss, and risk-per-trade — then reports the share of runs that fall to your ruin threshold. A closed-form approximation exists for fixed-fraction staking, but the simulation captures realistic streaks more faithfully.
Worked example: Risk a small fraction of the account per trade and few simulated runs reach ruin; risk a large fraction on the same edge and many are wiped out — bet size moves the figure far more than the edge does.
A model, not a promise: it assumes a constant edge and independent trades, so real markets — which cluster losses — are worse than any figure here. Educational tool, not advice.
A Monte-Carlo estimate: the odds of a 50% drawdown within 100 trades at this edge and bet size, assuming a constant edge and independent trades — real markets give neither, so treat it as a lower bound on how bad things can get.
Read the output as a floor, not a reassurance: the model assumes a constant edge and independent trades, but real markets cluster their losses and shift regime, so the true risk of ruin is higher than any figure here. Lower is always better, and only a value near zero is genuinely safe.
What drives risk of ruin up or down?
Bet size is the dominant lever: staking a larger fraction of the account per trade raises the chance an ordinary losing streak reaches the ruin threshold, even with the edge unchanged. A thinner edge and a shallower ruin threshold push it up as well.
What does a low risk-of-ruin figure actually indicate?
That across the simulated runs, few reached ruin under these assumptions — not that ruin is impossible. Because the model assumes a constant edge and independent trades, the real-world figure is higher, so a low number is a floor to respect rather than a guarantee of safety.
Why estimate risk of ruin by simulation?
A Monte-Carlo simulation follows the actual account path through realistic streaks and compounding, which a single closed-form shortcut smooths over. It runs thousands of trade sequences and reports the share that hit the ruin threshold.
A calculator shows what a rule should do on paper. A backtest is how you find the rare few that actually beat simply buying and holding — costs on, losses shown, no look-ahead — so when you build one that survives, you'll know it isn't a fake edge, and can prove it forward before you risk real money. It won't tell you you'll win — nothing honest can.