Risk of Ruin Calculator
Estimate the probability of losing your account given your edge and risk per trade.
Please note: Trading carries substantial risk of loss. These calculators are planning tools, not trading advice, and no position sizing method prevents losses.
What the Risk of Ruin Calculator does
Risk of ruin is the probability that a losing streak wipes out your account before your edge can play out. It rises sharply with risk per trade, which is why professional traders keep position sizes small even with a strong edge.
Formula
Edge = (Win rate × Payoff ratio) − Loss rateUnits to ruin = Ruin threshold ÷ Risk per tradeRisk of ruin ≈ ((1 − Edge/b) ÷ (1 + Edge/b)) ^ Units
Inputs explained
| Input | Unit | Required | Notes |
|---|---|---|---|
| Win rate | % | Yes | — |
| Win/loss payoff ratio | number | Yes | Accepts more than 0. |
| Risk per trade | % | Yes | — |
| Ruin threshold | % | Yes | Percent of capital lost that counts as ruin. |
How to use it
- Enter Win rate, Win/loss payoff ratio, Risk per trade and Ruin threshold.
- Select Calculate.
Worked example
A 50% win rate at 1:2 payoff, risking 2% per trade.
- Win rate
- 50
- Ratio
- 2
- Risk
- 2
Edge of 0.5R with 50 units of capital — risk of ruin well under 1%.
Frequently asked questions
Can I eliminate risk of ruin?
Not entirely, but you can push it toward zero by combining a genuine edge with small position sizes. With no edge, ruin is a certainty given enough trades.
Method and sources
Method. Probability of depleting the account to the ruin threshold, from the win rate, payoff ratio and fraction of capital risked per trade.
Assumptions
- Trades are independent with a fixed win rate and payoff, and risk per trade is a constant fraction.
- The edge entered is real and stable — the assumption that most often fails.
Limitations
- The model treats trading as a repeated bet with known odds. Markets supply neither known odds nor independence, and correlated positions can lose together in a way this does not represent.
- Ruin probability is exquisitely sensitive to risk per trade: doubling it does far more than double the risk of ruin.
- A low calculated probability is not safety. It is the output of assumptions that are themselves uncertain.