Risk of Ruin Calculator
Risk of ruin estimates the probability that a run of losses wipes out your account before your strategy's edge has a chance to play out — driven as much by how much you risk per trade as by your win rate.
How is risk of ruin calculated?
Your win rate and risk/reward ratio combine into a per-trade edge measured in units of risk (R). Your risk per trade then sets how many full losses in a row the account can absorb: at 1% risk per trade that is 100 losses, at 10% it is 10.
If the edge is zero or negative, risk of ruin is shown as 100%. As an example, take a trader with a 45% win rate and a 1:2 risk/reward (edge = 0.45 x 2 - 0.55 = +0.35R). The equation becomes 0.45z^3 - z + 0.55 = 0, whose root between 0 and 1 is z = 0.7134. Changing only the risk per trade:
Same edge, same win rate: the only thing that changed was risk per trade, and it moved risk of ruin from negligible to a real chance of losing the account. This is a simplified gambler's-ruin model with fixed-size risk, not a full Monte Carlo simulation, so treat the output as a directional estimate, not an exact probability.
What is an acceptable risk of ruin percentage?
Most professional traders target a risk of ruin below 5%, with institutional risk managers often holding to under 1%. A result above 5% is generally a sign that position sizing is too aggressive for the strategy's actual edge, regardless of how good the win rate looks.
Does win rate matter more than risk per trade?
Risk per trade usually has the larger effect, because large position sizes let a losing streak compound quickly, while a modest win-rate shortfall is something a sound risk/reward ratio can absorb. Increasing position size during a losing streak to "win it back," or sizing up after a winning streak, are two of the most common ways traders push a previously-safe risk of ruin into dangerous territory.
The same strategy with a thinner edge
Take a trader who wins 36% of the time on a 1:2 risk/reward. The edge is 0.36 x 2 - 0.64 = +0.08R, positive but small. The root z of 0.36z^3 - z + 0.64 = 0 between 0 and 1 is 0.9240, so the ruin figure is 0.9240 raised to the power of the risk units:
- 1% per trade: 100 risk units, risk of ruin 0.0%
- 2% per trade: 50 risk units, risk of ruin 1.9%
- 5% per trade: 20 risk units, risk of ruin 20.6%
- 10% per trade: 10 risk units, risk of ruin 45.4%
A 45% win rate at the same 1:2 ratio could risk 10% per trade and keep ruin near 3.4%. This thinner-edge trader risks 10% and faces nearly even odds of losing everything. A small edge leaves much less room for oversized risk, which is why you should rerun the calculator whenever your real results move.
When the edge is zero or negative
If the edge is zero or negative, risk of ruin is shown as 100%, because over enough trades the account is certain to run out. The edge reaches zero exactly at the breakeven win rate, which depends on the ratio:
- 1:1 risk/reward: breakeven win rate is 50.0%
- 1:2 risk/reward: breakeven win rate is 33.3%
- 1:3 risk/reward: breakeven win rate is 25.0%
A 55% win rate looks safe, but at 1:0.5 the edge is 0.55 x 0.5 - 0.45 = -0.175R, so the result is 100%. A good win rate does not rescue a payoff that is too small.
Choosing a risk size for a target
Instead of reading off a result, you can set the target and work out the risk. Say you want risk of ruin at or below 1%. For the 45% win rate at 1:2, z = 0.7134, and you need z^units to be 0.01 or less.
For the thinner 36% edge, z = 0.9240 and the same maths gives ln(0.01) / ln(0.9240) = 58.3 units, or 100 / 58.3 = 1.7% per trade. The weaker edge forces risk to a quarter of the size.
A closed-form case: 1:1 risk/reward
When the ratio is 1:1 the root has a simple form: z equals the loss rate divided by the win rate. A 55% win rate gives z = 0.45 / 0.55 = 0.8182.
The edge here is just 0.55 x 1 - 0.45 = +0.10R, small but positive, and it still tolerates 5% risk. Doubling the risk to 10% multiplies the ruin figure by more than seven.
Why the win rate you enter matters
The calculator takes the win rate at face value, and a 100-trade sample has a margin of roughly plus or minus 10 points. If your true win rate is 5 points lower than you measured, the edge at 1:2 falls from 0.45 x 2 - 0.55 = +0.35R to 0.40 x 2 - 0.60 = +0.20R.
Enter a pessimistic win rate as well as your measured one, and size risk to the pessimistic result. The Win Rate calculator gives the measured figure from your own log.
What the model leaves out
The calculation assumes every trade risks the same fixed amount, trades are independent, and nothing changes while a streak plays out. It adds no spread, commission or slippage. Real accounts size risk as a percentage of a changing balance, which makes total loss slower but also shrinks recovery, and many traders stop trading at a set drawdown long before zero.
For that reason, treat the figure as a directional comparison between settings, not an exact probability. Use it to see how much a change in risk per trade, win rate or ratio moves the result.
Check this against your own records
Take your win rate and average reward-to-risk from a log of at least 100 trades, which the Win Rate calculator helps you compute, and enter the real risk per trade you use. Then check the drawdown a bad streak would cause with the Drawdown calculator. For the mathematics, see risk of ruin and gambler's ruin on Wikipedia.
Conclusion
A positive edge on paper is not the same as a safe risk of ruin — an undercapitalized account, or one sized without a hard stop-loss policy, can still fail even with a genuinely winning strategy. Re-run this whenever your win rate, risk/reward, or position sizing changes. See the Lot Size / Position Size calculator and a deeper guide to risk of ruin and position sizing.
Frequently asked questions
Can a winning strategy still fail?
Yes — if the account is undercapitalized relative to its own risk per trade, a string of losses within normal statistical variance can still cause ruin even with a genuinely positive edge.
What is the breakeven win rate for a given risk/reward ratio?
Breakeven win rate = 1 / (1 + Risk:reward) x 100. At a 1:2 ratio that is 33.3% — you need to win more often than that just to avoid a net loss, before expectancy turns positive.
How does leverage relate to risk of ruin?
Leverage is not an input to the calculation. Risk of ruin depends on the amount you risk per trade, which is your lots times your stop distance times the pip value, not on the leverage your broker allows. Risking 1% with 1:500 leverage gives the same risk of ruin as risking 1% with 1:30, but higher leverage makes it easier to open a position that risks far more than you meant to.
Why does the calculator show 100% when my win rate is above 50%?
Because the edge, not the win rate, decides. If your average win is small relative to your average loss, the edge can be zero or negative even at a high win rate. At 1:0.5 risk/reward, a 55% win rate gives an edge of 0.55 x 0.5 - 0.45 = -0.175R, which the model treats as certain eventual ruin.
What risk per trade keeps risk of ruin low?
It depends on your edge. For a 45% win rate at 1:2, 1% to 5% per trade keeps the figure at about 0.1% or below, while 20% pushes it to 18.5%. For a thinner edge you need smaller risk to reach the same result, so test your own numbers rather than copying a rule of thumb.