Risk of Ruin Calculator

What the risk of ruin calculator does

The risk of ruin calculator estimates the odds that you lose everything if you keep trading the same way. From how often you win and how much you stake on each trade, it works out the probability that a run of losses eventually empties your account.

Risk of ruin looks at the downside tail: the chance that ordinary variance, not a single catastrophe, wears an account down to nothing. A strategy can look excellent right up until a long enough losing streak arrives.

How risk of ruin works

Any approach with a fixed stake per trade has a survival profile set by two things. Your edge is the long-run advantage that makes winning trades slightly more frequent or slightly larger than losing ones. Your bet size is the fraction of the account you put at risk each time.

A positive edge means the account tends to drift up over many trades, but it does not make ruin impossible. Even a profitable strategy can hit a losing streak long enough to wipe out an account that stakes too much per trade, and bet size decides how many consecutive losses you can survive.

The calculator converts your win probability into an edge, works out how long a losing streak would need to be to exhaust an account risking a fixed percentage each time, and computes the probability that such a streak eventually occurs. It reports the chance of ruin and the survival probability, which is the remainder.

The two inputs that decide the result

• Win probability is the share of trades you expect to win over a large sample. A higher win rate strengthens your edge and lowers the risk of ruin. Small changes near the break-even point have a large effect, so use honest, backtested numbers.
• Risk per trade is the percentage of your account you are willing to lose on one trade, and it is the input you control most directly. Cutting it lengthens the losing streak your account can absorb, which lowers the probability of ruin far faster than intuition suggests.

Why small bet sizes save accounts

The fall in risk of ruin as you shrink your risk per trade is not a straight line. A smaller stake means more losses are needed to reach zero, and a long losing streak becomes exponentially less likely the longer it has to run, so halving your risk per trade can turn a meaningful chance of ruin into a negligible one.

That is why disciplined traders often risk only a small fraction of their account, frequently one or two percent, on any single idea. A strategy has to survive before a positive edge can compound.

How to use the calculator

1. Enter your win probability, based on a realistic sample of past trades, not your best week.
2. Enter the percentage of your account you risk on each trade.
3. Enter the number of trades you expect to place. It provides context but does not change the long-run figure.

The tool shows your trading edge, the probability of ruin, and the probability of survival. A comfortable survival figure with a thin edge means you are relying heavily on small bet sizing; a strong edge with a high ruin figure means you are staking far too much per trade.

Reading the results

The model assumes your win rate and payoff stay constant, that trades are independent, and that you keep risking the same fraction. Real markets break all three at times, so use the figure to compare scenarios, not to predict an exact outcome.

• Lower your risk per trade and watch how quickly the ruin figure collapses.
• Enter a pessimistic win rate to see the cautious case. If the strategy only survives when everything goes right, it is fragile.
• A positive expected return and a low risk of ruin are different goals. You want both, and bet sizing is how you get them together.

Common mistakes

• Overstating the win rate. Using your best stretch instead of a full sample makes ruin look far less likely than it is.
• Risking too much per trade. Even a strong edge cannot save an account that stakes a large fraction on every trade; variance will eventually produce the losing streak.
• Confusing profit with safety. A strategy can have a positive expected value and still carry a real chance of ruin if the bet size is aggressive.

Find a risk per trade that keeps ruin negligible even under a pessimistic win rate, then let your edge compound over the long run.

This article is general information only and is not financial advice.

About This Risk of Ruin Calculator

Use this risk of ruin calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.