Risk of Ruin Calculator

Ruin, for a retail trader, almost never means a zero balance. It means the point at which trading stops: a funded-account limit is breached, a personal rule fires, or conviction simply runs out and the system is abandoned mid-drawdown. The account survives. The participation does not, which comes to the same thing.

Which makes the useful question a narrow one. Given your edge, your risk per trade and the drawdown you have already decided you will not sit through, what are the odds you reach that line before the edge has had time to pay? That is what this calculator answers, and the answer is usually larger than it feels.

Why this is not the textbook formula

The classic risk-of-ruin equations assume a fixed bet size and a zero balance as the absorbing barrier. Neither matches how anyone actually trades. Real traders size as a percentage of a moving equity curve, and they stop far above zero — at a 10% daily limit, a 30% personal rule, or the moment a spouse asks a question.

So the number above comes from simulation rather than a closed form: thousands of accounts run through your parameters, compounding at your risk fraction, each one ending the moment it falls the stated distance below its own high-water mark. That is a harder and more honest test than the textbook version, and it usually returns a larger number than traders expect.

The three levers, in order of power

1. Risk per trade. Look at the table: it is the only column where a change of one setting moves the outcome by tens of percentage points. Halving the risk does not halve the chance of ruin — it collapses it, because a drawdown is a product of consecutive losses and risk size compounds through every one of them. This is also why more leverage can lower your expected result rather than merely widening it, which the leverage myth works through with the full distribution.

2. Where you put the line. A 20% rule and a 30% rule are not a ten-point difference in comfort. At this page’s own default settings they are the difference between roughly 46% and roughly 8% — a five- or six-fold change in the probability of being stopped out of your own system. If the line is imposed on you by a funded account, that is the constraint the sizing must be built around. If it is yours, it needs to sit outside the ordinary noise of your method — which means knowing what that noise looks like first. The streak table is where that number comes from.

3. The edge. Expectancy has the least leverage over ruin in the short run and all of the leverage over the long run. If the expectancy field above is negative, nothing else on this page matters: ruin is not a risk being managed, it is the destination, and the arrival time is the only variable.

The trap this tool exists to expose

Set the win rate to 45%, the reward-to-risk to 2 and the cost to 0.05. That is a genuinely good system — an expectancy of about +0.30R per trade, better than most traders ever build. Now move the risk from 1% to 5% and watch the ruin column.

The edge did not change. The system is exactly as good as it was. What changed is whether the person holding it is still there at trade 200 to collect. Most failed trading is not failed analysis; it is a correct method run at a size that cannot survive its own normal bad run.

What the number does not include

• Gaps and slippage. The simulation assumes every stop fills at the stop. Real markets gap over weekends and news, and a stop is an instruction, not a guarantee. The real ruin probability is somewhat higher than shown.
• Correlated positions. Each trade here is independent. If you routinely hold three positions in one theme, a single bad session delivers three losses at once — the portfolio heat calculator converts that into the number of bets you are really holding.
• You. The model never revenge-trades, never widens a stop, never doubles up to get it back. Every one of those behaviours moves the real number in the same direction.
• A stationary edge. The win rate you type is assumed to hold for all 200 trades. Real edges decay, and markets change regime without notice.