calc.forex

Risk of Ruin Calculator

Estimate the probability that a strategy reaches a chosen drawdown, from its win rate, reward-to-risk ratio and risk per trade.

Same amount every trade; gambler's-ruin formula.

Payoff entered as
%
1:

Reward per 1 risked, e.g. 2.

%

Of the starting balance, every trade.

%

Loss from the starting balance you'd call ruin.

%

Odds of this fall from any high point.

trades

Horizon for the simulations, up to 10,000.

Probability of ruin

3.6%

Chance of ever losing 50% of the start

Edge per trade

+0.20 R

0.6% of the start per trade on average

Losing streak to ruin

17 losses

50% ÷ 3% per loss

−20% from a peak

71%

Chance within 500 trades

Worst drawdown

24.9%

Median run; 1 in 20 over 52%

Fixed risk: every trade risks the same amount (a % of the starting balance). Ruin odds have no time limit; drawdown odds cover 500 trades, simulated 2,000 times. Assumes independent trades and that your win rate and R are accurate — an overestimated edge understates the risk.

Show the math
  1. Edge per trade (expectancy)p × R − q = 0.4 × 2 − 0.6 = +0.20 R
  2. Risk units to ruinC = ruin ÷ risk = 50% ÷ 3% = 16.667
  3. z is the root in (0, 1) of p·z^(R+1) − z + q = 00.4·z^3 − z + 0.6 = 0 → z = 0.82288
  4. Probability of ruin at fixed risk (gambler's ruin)R is a whole number, so ruin takes ⌈C⌉ = 17 net losses: P = z^17 = 0.82288^17 = 3.6%
  5. Drawdown from peak = (highest balance so far − balance) ÷ highest balance70.95% of 2,000 simulated runs of 500 trades fell 20% or more from a high (fixed amount per trade)
Embed this calculator

Quick answer

With a fixed amount risked per trade, the probability of ever reaching a set drawdown is z^C, where C = ruin level ÷ risk per trade and z solves p·z^(R+1) − z + q = 0 (p = win rate, q = 1 − p, R = reward:risk). A 40% win rate at 1:2, risking 2% with ruin defined as a 50% drawdown, gives C = 25 and about 0.76%. With zero or negative expectancy, ruin is certain.

Worked examples: Risk management

Risk of ruin at 2% risk per trade

Probability of ever losing 50% of your starting balance when every trade risks 2% of that starting balance, by win rate and reward:risk (R). Anything without a positive edge eventually hits the drawdown; with an edge, the risk falls off quickly.

Probability of a 50% drawdown, fixed 2% risk per trade
Win rateR = 1R = 1.5R = 2R = 3
35%100%100%28.9%0.19%
40%100%100%0.76%< 0.01%
45%100%1.6%0.02%< 0.01%
50%100%0.03%< 0.01%< 0.01%
55%0.66%< 0.01%< 0.01%< 0.01%
60%< 0.01%< 0.01%< 0.01%< 0.01%

Fixed-risk gambler's-ruin model: wins pay R × the amount risked, losses cost 1×, over an unlimited number of trades (25 straight losses reach the 50% level). Exact for whole-number R, a close approximation for R = 1.5. Risking a percentage of the current balance lowers these numbers.

What is the Risk of Ruin Calculator?

Risk of ruin is the probability that a series of trades takes your account down by a set amount — the ruin level — before your edge pays off. Here ruin is a drawdown you choose, 50% by default, rather than a zero balance. It depends on four inputs: win rate, reward-to-risk ratio (R), risk per trade and the ruin level.

The calculator offers two models:

  • Fixed risk (analytic) — every trade risks the same amount, a percentage of the starting balance, with no time limit. The probability of ever reaching the ruin level is the gambler's-ruin result P = zC, where C = ruin level ÷ risk per trade and z is the root between 0 and 1 of p·zR+1 − z + q = 0 (p = win rate, q = 1 − p).
  • Compounding (simulation) — every trade risks a percentage of the current balance, so bets shrink after losses. The calculator runs 2,000 simulated sequences of your chosen number of trades and reports the share that hit the ruin level, plus the median and worst final balance.

With zero or negative expectancy (p × R − q ≤ 0), ruin is certain in the long run whatever you risk per trade; smaller risk only makes it take longer.

How to use this calculator

  1. Model — Fixed risk (analytic) or Compounding (simulation).
  2. Win rate — the share of trades that win, from a large sample of your own trades.
  3. Risk : reward — the reward per 1 risked (average win ÷ average loss), e.g. 2 for winners twice the size of losers (1 : 2).
  4. Risk per trade — as a % of the starting balance (fixed model) or of the current balance (compounding model).
  5. Ruin level (drawdown) — the loss from the starting balance you would treat as ruin; 50% by default.
  6. Number of trades — compounding model only: the horizon for each simulation, up to 10,000.

The fixed model shows the probability of ruin, the edge per trade in R and the number of consecutive losses that reaches the ruin level. The compounding model shows the simulated probability, the edge, the losing streak to ruin and the median and worst final balances. Show the math gives the expectancy, C, z and P; Copy link with these numbers saves the inputs.

Worked example

Fixed risk. Win rate 40%, R = 2, risk 2% per trade, ruin at a 50% drawdown. Edge = 0.4 × 2 − 0.6 = +0.2R per trade. C = 50 ÷ 2 = 25, and z = (√1.12 − 0.4) ÷ 0.8 ≈ 0.8229. P = 0.822925 ≈ 0.76%. It takes 25 losses in a row to reach the ruin level.

Same strategy at 3% risk (the calculator's default): 17 losses (C = 16.7, rounded up) and P ≈ 3.6%. At 5% risk, C = 10 and P ≈ 14%. The edge is unchanged; only the size of each bet differs.

No edge. Win rate 40% at R = 1.5: 0.4 × 1.5 − 0.6 = 0. The probability of ruin is 100% at any risk per trade.

Compounding. Risking 3% of the current balance, a straight run of losses needs 23 losses to reach a 50% drawdown (0.9723 ≈ 0.496) instead of 17, so the simulated probability over 500 trades is lower than the fixed-risk figure.

When to use it

  • Choosing risk per trade — see how much the probability of a deep drawdown falls when you halve your risk.
  • Before trading a strategy live — check that its statistics survive realistic losing streaks.
  • Prop-firm challenges — set the ruin level to the firm's maximum drawdown.
  • After a change in results — re-run it with your updated win rate and R.

Common mistakes

  • Using too few trades to estimate win rate and R. Twenty or thirty trades say little; an overestimated edge makes the probability look far lower than it is.
  • Leaving out costs. Spread and commission lower the effective R and can turn a small edge into none.
  • Reading a low number as a guarantee. The models assume independent trades with stable statistics. Real results cluster and change with market conditions.
  • Ignoring the ruin level. A 20% prop-firm limit and a 100% wipe-out give very different probabilities for the same strategy.

Frequently asked questions

What does the fixed-risk model assume?

Each trade risks the same money amount — a percentage of the starting balance — and wins pay R times that amount. Trades are independent, win rate and R are constant, and there is no time limit: the result is the probability of ever reaching the ruin level.

Why does the compounding model use a simulation?

When each trade risks a share of the current balance, the bet size changes after every trade and there is no simple closed formula for the probability of a drawdown within a set number of trades. The calculator simulates 2,000 sequences with a fixed random seed, so the same inputs always give the same result.

How much does risk per trade matter?

A great deal. For a 40% win rate at R = 2 with ruin at a 50% drawdown, the fixed-risk probability is about 14% at 5% risk per trade, 3.6% at 3%, 0.76% at 2% and under 0.01% at 1%.

Can a profitable strategy still have a high risk of ruin?

Yes. A positive edge with large bets can still produce a losing streak deep enough to reach the ruin level before the edge shows. At 40% wins and R = 2, risking 10% per trade with ruin at 100% gives about a 14% chance of losing everything.

Is risk of ruin the same as maximum drawdown?

No. Maximum drawdown is the largest fall that has happened in a record of trades. Risk of ruin is a probability, estimated from your statistics, of reaching a chosen drawdown in the future.

Related calculators

  • Kelly Criterion Calculator

    Calculate the Kelly fraction from your win rate and average win/loss ratio, with half and quarter Kelly alongside.

  • Lot Size & Position Size Calculator

    Find the lot size that risks exactly the amount you choose, from your balance, risk per trade and stop-loss distance.

  • Drawdown Calculator

    Find the gain needed to recover from a drawdown. A 50% loss needs a 100% gain to get back to even.

  • Prop Firm Drawdown Calculator

    See how much you can still lose today and in total before you breach your prop firm's daily or maximum loss limit, static or trailing — and the biggest position your next stop loss allows.

All 32 calculators

Brokers we partner with

Affiliate links. calc.forex is free and funded by affiliate commissions: if you open an account through a broker link on this site, we may be paid by the broker at no extra cost to you. This never changes the numbers our calculators produce.

Risk warning: CFDs and leveraged forex are complex instruments and come with a high risk of losing money rapidly due to leverage. 74–89% of retail investor accounts lose money when trading CFDs with the brokers listed here. Consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.