TRADING
Risk of Ruin Calculator — Probability of Losing Your Trading Account
By Worldtickers ·
Use our free risk of ruin calculator to determine the probability of losing your entire trading account. Enter your win rate, average reward-to-risk ratio, and risk per trade to see your risk of ruin percentage, plus the formula, worked examples, and practical tips.
This risk of ruin calculator — probability of losing your trading account tool focuses on use our free risk of ruin calculator to determine the probability of losing your entire trading account. Enter your win rate, average reward-to-risk ratio, and risk per trade to see your risk of ruin percentage, plus the formula, worked examples, and practical tips. Use it to size trades, compare risk levels, estimate market exposure, and review entries, exits, volatility, leverage, and stop levels before committing capital.
Risk of Ruin Calculator
Risk of Ruin Calculator
Estimate the probability of losing your entire trading account based on your win rate, risk, and reward ratio.
What Is Risk of Ruin?
Risk of ruin is the mathematical probability that a trader will lose enough of their account balance that they can no longer continue trading. It is the single most important number in a trader's risk management framework because it answers the question that matters most: what is the chance that I will be forced out of the market entirely before my strategy has a chance to prove itself? A 2% risk of ruin means that, given your current win rate, reward-to-risk ratio, and risk per trade, there is a 1-in-50 chance that a string of consecutive losses will reduce your account to zero — or to a point where you cannot meaningfully recover.
The concept originates from probability theory and was first formalized in the context of gambling. In the 1950s and 1960s, mathematicians like John Kelly Jr. and Edward Thorp applied these ideas to betting markets, and the principles translated directly to financial trading. The core insight is timeless: even a profitable system can destroy an account if the bet sizes are too large relative to the size of the edge. Risk of ruin quantifies that danger with mathematical precision, replacing gut feel with a number you can actually manage.
The three primary inputs to the risk of ruin formula are your win rate (what percentage of trades are winners), your average reward-to-risk ratio (how much you win on winners relative to how much you lose on losers), and your risk per trade (what percentage of your account you risk on each position). Changing any one of these inputs changes your risk of ruin, and the relationship is often nonlinear — a small increase in risk per trade can dramatically increase the probability of ruin, especially when win rate or reward-to-risk is marginal.
How to Use This Calculator
This risk of ruin calculator takes three inputs and produces a probability. The inputs are designed to match the parameters you would use in real trading, so the output reflects your actual risk profile rather than a theoretical abstraction.
Win Rate
Enter the percentage of your trades that are winners. If you have won 60 out of 100 trades, your win rate is 60%. Use your actual track record if you have one; if you are planning a new strategy, use conservative estimates. Your win rate should be calculated over a meaningful sample size — at least 50 to 100 trades — to be statistically reliable. A win rate derived from 10 trades is too noisy to trust for this calculation.
Average Win / Average Loss (Reward-to-Risk Ratio)
Enter the ratio of your average winning trade size to your average losing trade size. If your average win is $600 and your average loss is $400, your reward-to-risk ratio is 1.5. A ratio of 1.0 means you win and lose the same amount on average. A ratio above 1.0 means your winners are larger than your losers, which reduces risk of ruin. A ratio below 1.0 means your losers are larger than your winners — a difficult position that requires a very high win rate to overcome.
Risk Per Trade (%)
Enter the percentage of your current account balance that you risk on each trade. This is the amount you would lose if the trade hits your stop loss. If you have a $10,000 account and your stop loss means you would lose $200 on a losing trade, your risk per trade is 2%. This is the most important lever you have — reducing risk per trade is the most direct way to lower your risk of ruin, and it is entirely within your control regardless of market conditions.
The Formula Explained
The risk of ruin formula used by this calculator is based on the classic probability model: Risk of Ruin = ((1 − Edge) / (1 + Edge))^Units, where Edge is derived from your win rate and reward-to-risk ratio, and Units represents the number of risk-units in your account. A more practical version of the formula, which this calculator implements, uses the equation:
Risk of Ruin = (1 − (W − L × (1/R))) / (1 + (1/R))^(Account Size / Risk per Trade)
Where W is the win rate, L is 1 − W (the loss rate), R is the reward-to-risk ratio, and the exponent represents how many consecutive losses of the given size it takes to deplete the account. The formula works by calculating the probability that enough consecutive losses occur in sequence to reduce the account to zero.
To build intuition: if you risk 2% per trade, it takes roughly 34 consecutive losses to reduce your account to zero (0.98^34 ≈ 0.50, so about 34 losses to halve it, and about 230 to approach zero). If you risk 10% per trade, it takes only about 22 consecutive losses to halve the account, and the probability of hitting such a streak becomes alarmingly high even with a reasonable win rate. The exponential nature of the formula is why position sizing dominates all other risk management considerations.
Real-World Examples
Example 1: Conservative Trader
A trader has a 55% win rate, a 1.5 reward-to-risk ratio, and risks 1% per trade. The risk of ruin is approximately 0.1%. This means there is roughly a 1-in-1,000 chance that this trader will blow up their account. At 1% risk per trade, it would take an extraordinary streak of over 200 consecutive losses to reach zero — a virtually impossible scenario given the 55% win rate. This is the profile of a trader who will almost certainly survive long enough for their edge to play out.
Example 2: Aggressive Trader
The same trader increases risk per trade to 5%, keeping win rate at 55% and reward-to-risk at 1.5. The risk of ruin jumps to approximately 5.5%. That is a 1-in-18 chance of account destruction. The fivefold increase in risk per trade did not produce a fivefold increase in risk of ruin — it produced roughly a fiftyfold increase. This exponential relationship is the critical insight most new traders miss. The math punishes aggression disproportionately.
Example 3: Low Win Rate, High Reward
A trend follower has only a 40% win rate but a 2.5 reward-to-risk ratio, risking 1% per trade. Despite losing 60% of trades, the risk of ruin is approximately 0.3%. The high reward-to-risk ratio compensates for the frequent losses because each winning trade generates 2.5 times the average loss. This demonstrates that win rate alone does not determine safety — the relationship between win rate and reward-to-risk is what matters, and a strategy can be perfectly safe with a losing record if the winners are large enough.
Tips and Limitations
Keep Risk Per Trade Below 2%
The single most effective way to reduce your risk of ruin is to lower your risk per trade. Most professional traders and money managers use 1% or less per position. At 1% risk per trade, even a terrible string of 20 consecutive losses only reduces your account by about 18% — painful but recoverable. At 5% risk per trade, the same 20 losses reduce your account by 64%, putting you in a recovery hole that requires a 178% gain just to break even. The math is unambiguous: smaller positions are safer.
Use Your Actual Track Record
The calculator is only as good as the inputs you feed it. If you estimate your win rate at 60% but your actual record is 50%, your real risk of ruin is dramatically higher than what the calculator shows. Track every trade, calculate your actual win rate and average win/loss ratio, and use those real numbers. If you have fewer than 50 trades, treat the result as an estimate rather than a precise measurement.
Remember the Assumptions
The risk of ruin formula assumes fixed fractional position sizing (same percentage risked on every trade) and independent, identically distributed outcomes. Real trading does not perfectly match these assumptions — market conditions change, correlations spike during crises, and human psychology can alter behavior under stress. Treat the output as a useful approximation, not a guarantee. Add a safety margin to your risk management rules to account for the things the formula cannot capture.
Pair with Maximum Drawdown Expectations
Risk of ruin tells you the probability of total loss, but it does not tell you the pain you will endure along the way. A trader with a 0.5% risk of ruin might still experience a 40% drawdown before recovery. Use our drawdown calculator alongside this one to understand both the destination (ruin probability) and the journey (expected drawdown).
Frequently Asked Questions
What is risk of ruin in trading?
Risk of ruin is the probability that a trader will lose their entire account balance, or enough of it that they can no longer meaningfully participate in the market. It is a mathematical concept borrowed from gambling theory, and it captures a crucial truth about trading: even a profitable strategy can blow up an account if the position sizing is too aggressive relative to the edge available. A 5% risk of ruin means there is a 1-in-20 chance that a series of consecutive losses will wipe out your account, given your current win rate and risk per trade.
Why does risk of ruin matter?
Because it quantifies the one risk that every trader fears most: total loss. Even a strategy with a positive expectancy — a strategy that should make money over time — can produce a string of losses large enough to drain an account. Risk of ruin tells you how likely that outcome is given your current parameters. If your risk of ruin is 10%, that means there is a 1-in-10 chance you will be forced out of the market entirely before your edge has a chance to manifest. Most professional traders keep this number below 1%, and many aim for near zero.
How does win rate affect risk of ruin?
Win rate is one of the most powerful inputs in the risk of ruin formula. A higher win rate directly reduces the probability of consecutive losses long enough to breach your account. For example, a trader with a 60% win rate and a 1:1 reward-to-risk ratio has a dramatically lower risk of ruin than a trader with a 45% win rate and the same risk per trade. However, win rate alone does not tell the whole story — a high win rate combined with tiny wins and large losses can still produce a high risk of ruin because the losses dominate the account balance when they occur.
How does risk per trade affect risk of ruin?
Risk per trade is the most controllable factor in the risk of ruin equation. If you risk 10% of your account on each trade, a streak of just 10 consecutive losses reduces your account to roughly 35% of its original value. At 2% risk per trade, the same 10 losses leave you with about 82%. The mathematical relationship is exponential — each additional percentage risked dramatically increases the probability of ruin. This is why professional traders typically risk between 0.5% and 2% of their account per trade, regardless of how confident they are in a particular setup.
What is a acceptable risk of ruin percentage?
Most professional money managers and institutional traders target a risk of ruin below 1%, and many consider even that too high for significant capital. A 0.5% risk of ruin is a common target for serious traders. For context, a 5% risk of ruin means that if you repeated your current trading parameters 100 times, you would expect to blow up your account approximately 5 times. That may sound manageable, but consider that each blowup typically requires a 100% gain just to recover — a 5% blowup probability compounds into a devastating expected outcome over time.
Can I have a positive expectancy and still have a high risk of ruin?
Yes, and this is one of the most important and counterintuitive concepts in trading. A strategy can be profitable on average while still carrying a significant risk of ruin. Consider a strategy with a 55% win rate and a 1:1 reward-to-risk ratio — it has a positive expectancy of 10 cents per dollar risked. But if you risk 20% of your account per trade, a streak of just 5 losses drops your account to 32.8% of its original value, and the mathematics of recovery become punishing. A positive expectancy guarantees profitability only over an infinite sample; finite accounts with finite risk per trade can still be destroyed by variance.
What is the difference between risk of ruin and maximum drawdown?
Risk of ruin is the probability of losing a specific portion of your account (often 100%), while maximum drawdown is the largest peak-to-trough decline your account experiences. They are related but different concepts: risk of ruin focuses on the terminal outcome (account wipeout), while maximum drawdown measures the worst journey you endure along the way. A trader can have a very low risk of ruin but a very high maximum drawdown if they use small position sizes that keep them safe from total loss but allow large temporary declines. Conversely, aggressive position sizing can produce both a high risk of ruin and a high maximum drawdown.
How often should I recalculate my risk of ruin?
Recalculate whenever your key inputs change — specifically your win rate, average reward-to-risk ratio, or risk per trade. Most traders recalculate monthly or quarterly as their track record grows and the inputs stabilize. Early in your trading career, when you have fewer than 100 trades, your win rate estimate is noisy and unreliable, so recalculate more frequently as new data comes in. If you change your position sizing rules or strategy, recalculate immediately to understand the impact on your risk profile.
Does the risk of ruin formula assume fixed risk per trade?
Yes, the standard risk of ruin formula assumes a fixed fractional risk per trade — you always risk the same percentage of your current account balance. In practice, many traders do not follow this exactly, and the formula becomes less accurate when risk varies wildly from trade to trade. If you sometimes risk 1% and sometimes risk 5%, your actual risk of ruin will differ from what the formula predicts. The safest approach is to fix your risk percentage and then use the formula as an accurate reflection of your real-world risk.