Risk of Ruin Calculator

A risk of ruin calculator estimates the probability that a trading system loses a chosen share of the account before it recovers. Ruin is whatever loss level you define: 100% of capital, 50%, or the maximum loss a prop firm evaluation allows.

What the result depends on

The estimate uses four inputs:

• Win rate: the share of trades that close in profit.
• Reward to risk: the average win divided by the average loss.
• Risk per trade: the share of the account lost when a trade hits its stop.
• Ruin level: the loss you define as ruin.

Some models also take a number of trades: a longer run gives a losing streak more chances to occur, so the probability of ruin rises with the trade count.

Edge per trade

Edge per trade is the expected result of one trade, measured in R (multiples of the amount risked):

Edge = win rate × reward to risk − (1 − win rate)

Hypothetical example: a 50% win rate with 1.5R winners gives 0.5 × 1.5 − 0.5 = 0.25R. If edge is zero or negative, ruin becomes close to certain over a long enough run, whatever the position size.

The formula and its assumptions

For equal-sized wins and losses, the classic formula is:

Risk of ruin = ((1 − A) / (1 + A))^C

A is the edge (win rate minus loss rate), and C is the number of losing trades the ruin level can absorb.

Hypothetical example: a 55% win rate at 1:1 gives A = 0.10. Risking 5% of starting capital per trade with ruin at a full loss gives C = 20, and the result is about 1.8%. At 10% risk, C falls to 10 and the result rises to about 13.4%. The edge is unchanged; only the position size differs.

The formula assumes independent trades, a fixed dollar risk per trade and uniform payoffs. Real results break these assumptions, so many traders use Monte Carlo simulation instead: it shuffles randomly generated trade sequences many times and counts how often the ruin level is hit.

Ruin vs. drawdown

Risk of ruin measures a loss from the starting balance, so it falls as the account grows. Risk of drawdown measures a fall from the highest peak, which moves up with every new high. For prop firm accounts with an end-of-day trailing drawdown, the limit follows the peak, so drawdown risk is the closer match to how the account can actually fail.

What the estimate leaves out

The model ignores slippage, gaps, commissions, changing volatility and a win rate that decays. Its inputs are only as reliable as the sample behind them: a win rate from a few dozen trades can overstate the edge, and backtesting gives a larger sample. The position size calculator converts a chosen risk percentage into a lot size for each trade.