Assess the probability of losing your entire account based on your trading statistics.
Calculate the probability of losing your entire trading account based on your strategy statistics.
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The Risk of Ruin Calculator determines the statistical probability of depleting your trading account to a specified level (usually zero or 50%) based on your win rate, risk-reward ratio, and risk per trade. This advanced tool is used by professional traders, prop firms, and quants to evaluate whether a trading system is mathematically sustainable over thousands of trades.
Unlike simple win-rate analysis, Risk of Ruin accounts for the compounding nature of consecutive losses. Even a profitable strategy can blow an account if position sizes are too large or if a losing streak exceeds expectations. This calculator reveals whether your edge is strong enough to survive inevitable drawdowns.
Risk of Ruin = ((1 – Edge) / (1 + Edge)) ^ Capital Units
Where:
A trader with a $10,000 account risking $200 per trade (2%) has 50 capital units. With a positive edge, the ruin probability decreases exponentially.
Example 1: Viable Strategy (Low Ruin Risk)
Calculation:
Edge = (0.55 × 1.5) – (0.45 × 1) = 0.825 – 0.45 = 0.375
Risk of Ruin = ((1 – 0.375) / (1 + 0.375))^100 = (0.45)^100 ≈ 0.00001%
With a strong edge and conservative sizing, this strategy has essentially zero risk of ruin. It can be traded confidently.
Example 2: Marginal Strategy (High Ruin Risk)
Calculation:
Edge = (0.40 × 1.5) – (0.60 × 1) = 0.60 – 0.60 = 0.00
Risk of Ruin = ((1 – 0) / (1 + 0))^20 = 1^20 = 100%
With zero edge and high risk per trade, account ruin is mathematically guaranteed. This trader must either improve win rate, increase R:R, or reduce risk per trade.
Example 3: Improving a Risky Strategy
Same 40% win rate, 1.5:1 R:R strategy, but reducing risk from 5% to 1%:
Capital Units increase from 20 to 100
Even with zero edge, more capital units provide more "lives" to survive losing streaks, reducing immediate ruin probability (though long-term erosion continues).
Calculate the mathematically optimal position size based on your win rate and reward-risk ratio.
Calculate the perfect position size for your trades based on your account size, risk tolerance, and stop loss distance.
Project your trading account growth over time with the power of compound interest and consistent returns.
Tools that work best with the Risk of Ruin Calculator
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