Risk of ruin calculator
Estimate how often an account with a given win rate, payoff ratio and risk per trade falls to a set drawdown, using a repeatable Monte Carlo simulation.
How the simulation works
The calculator plays out a large number of imaginary accounts, trade by trade, and counts how many of them fall to the ruin level before their trades run out.
For every trade, a pseudo-random number decides win or loss with the probability set by the win rate. A win adds the risk percentage times the payoff ratio; a loss takes away the risk percentage. Because risk is a percentage of the balance at the time, position sizes shrink after losses and grow after wins. An account that touches the ruin level is counted as ruined and stops trading. The share of ruined accounts is the estimate.
Why the result is repeatable
The random numbers come from a seeded generator: the same inputs and seed produce exactly the same sequence, so a result can be shared and checked. A different seed draws a different sample. The spread between seeds shows the sampling error, which shrinks as the number of accounts grows. As a guide, the standard error of an estimated probability p from N accounts is √(p × (1 − p) ÷ N): about 0.22 percentage points for a 5% result from 10,000 accounts.
What the simulation assumes
- Every trade is independent. A loss does not make the next loss more or less likely. Real results can cluster, which makes long losing streaks more common than the simulation shows.
- Every win is the same size, and so is every loss. Each win pays exactly the payoff ratio times the risk and each loss costs exactly the risk. Real trades vary around their averages, and a loss can exceed the planned risk when a stop slips.
- The win rate and payoff never change. The inputs are treated as the true long-run figures, not as estimates from a limited sample of past trades.
- Fixed-fraction sizing. Risk is a percentage of the current balance, recalculated every trade. With this sizing the balance never reaches exactly zero, which is why ruin is defined as a drawdown level rather than an empty account.
- A limited horizon. Each account trades only the number of trades set. More trades give more chances to hit the ruin level.
- No costs. Spread, commission and swap are left out unless they are already in the win rate and payoff ratio.
The same strategy at four risk levels
Win rate 45%, payoff ratio 1.5, ruin at a 30% drawdown, 500 trades per account, 10,000 accounts, seed 1. The expectancy is positive, 0.45 × 1.5 − 0.55 × 1 = +0.125R per trade, at every risk level; only the size of each trade changes.
| Risk per trade | Accounts ruined | Risk of ruin |
|---|---|---|
| 0.5% | 0 | 0.00% |
| 1% | 23 | 0.23% |
| 2% | 724 | 7.24% |
| 3% | 1,839 | 18.39% |
These figures were produced by this calculator with the inputs above. The same positive expectancy can carry very different chances of a deep drawdown depending on how much is risked on each trade.
Frequently asked questions
What is risk of ruin in trading?
Risk of ruin is the probability that an account falls to a level treated as ruin, such as a 30% drawdown or a prop firm’s maximum loss, given a win rate, a payoff ratio and an amount risked per trade. It measures the danger in the size of each trade, not whether the trades make money on average.
Why use a Monte Carlo simulation instead of a formula?
The classic closed-form formulas assume wins and losses of equal size or a fixed amount risked on every trade. A simulation handles any payoff ratio, risk as a percentage of the current balance, and a limited number of trades. The cost is sampling error, which the number of simulated accounts keeps small.
What does the seed do?
The seed starts the pseudo-random number generator. The same inputs with the same seed always give the same result, so it can be bookmarked and checked. Changing the seed draws a new sample; if the result moves a lot between seeds, more simulated accounts will give a steadier estimate.
What counts as ruin in this calculator?
An account is ruined the first time its balance falls to the starting balance minus the ruin percentage. With the default of 30%, that is 70% of the starting balance. Set it to the loss that would end the account for you, such as a prop firm’s maximum loss.
How does risk per trade change the risk of ruin?
The larger each trade, the fewer losses in a row it takes to reach the ruin level. From the starting balance, a 30% drawdown takes 36 straight losses at 1% risk per trade but 18 at 2%, and losing streaks of a given length become much more likely as they get shorter.
Is the result the probability that my account will fail?
No. It is the probability under the simulation’s assumptions: independent trades, a fixed win rate and payoff, and no costs. Real trading breaks those assumptions, and the inputs are themselves estimates from past trades.
Related calculators
- Trading expectancy calculatorThe average amount a set of trades makes or loses per trade, from win rate, average win and average loss.
- Drawdown recovery calculatorThe gain needed to return to a previous peak after a drawdown of any size, with a reference table.
- Prop firm drawdown calculatorRoom left today and overall under daily loss and maximum loss rules, static or trailing, and which rule binds first.
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