Risk of Ruin Calculator
Estimate the probability of a fatal drawdown by simulating many sequences of trades at a fixed risk level.
Quick answer: Risk of ruin is the probability that a run of trades drives your capital down to a chosen ruin threshold before it recovers. This tool estimates it by Monte Carlo simulation: it plays out thousands of long sequences of trades using your win rate, per-trade risk and payoff ratio, and reports the fraction of those sequences that ever breached the threshold. A higher win rate, smaller risk or better payoff lowers the figure.
How to use it
Enter your win rate, the percentage of current capital risked on each trade, the payoff ratio (average win divided by average loss), and the drawdown that you define as ruin. The tool simulates thousands of trade sequences and reports the approximate probability that equity ever falls to the ruin threshold. It is an estimate from random simulation, so the figure moves slightly each time inputs change.
Formula
Risk of ruin ≈ ( number of simulated sequences that hit the ruin threshold ) ÷ ( total sequences )
Each trade wins with the given probability and multiplies equity by (1 + risk% × b) on a win or (1 − risk%) on a loss. Ruin is reached when equity falls to (1 − threshold%) of its start.
Limitations — what this calculator does not model
- A Monte Carlo estimate, so the figure wobbles slightly on each run and is only as good as the win-rate and payoff inputs.
- Assumes independent, identically distributed trades — it ignores correlation, regime change and clustered losses that raise real ruin.
- Models a single fixed-fractional strategy; it does not aggregate a whole book's correlated positions.
- Cannot include a shock larger than the inputs imply; pair it with explicit stress scenarios.
Frequently asked questions
Why use simulation instead of a formula?
Closed-form risk-of-ruin formulas exist but rely on simplifying assumptions about fixed bet sizes and payoffs. A Monte Carlo estimate handles the compounding fixed-fractional case directly and is easy to reason about, at the cost of a small random wobble in the answer.
What counts as ruin for a live account?
Whatever drawdown makes the account unrecoverable, triggers a forced liquidation, or ends the mandate — entered as a percentage. Fifty percent is a common illustrative choice, but a running system often treats a far smaller drawdown as terminal and enforces it as a hard daily-loss limit.
How do I lower my risk of ruin the fastest?
Reduce risk per trade. Because capital in bet-units sits in the exponent of the ruin probability, cutting the per-trade fraction slashes ruin far more than proportionally — the single strongest lever, ahead of improving win rate or payoff.
Does a positive expectancy mean zero risk of ruin?
No. A profitable system can still ruin an account if the per-trade risk is too large, because an unlucky early losing streak can breach the threshold before the edge plays out. Sizing, not just edge, controls survival.
How does a live system keep its modelled ruin negligible?
By keeping per-trade fractions small, capping portfolio heat so correlated positions cannot aggregate into one oversized bet, and enforcing the ruin threshold mechanically with daily-loss circuit breakers and a kill switch — so neither a streak nor a software bug can carry the account past the stopping point.
Why do correlated live positions raise the real risk of ruin?
The simple estimate assumes independent bets, but correlated positions lose together, inflating the effective bet size well above the per-trade fraction. That is why the per-trade limit alone is not enough and a book-level heat cap is part of the same control.
Runs entirely in your browser — no data leaves your device. Illustrative and educational only; real-world charges and market conditions apply in practice.