Statistical Risk of Ruin Calculator
Calculate mathematical probability of account bankruptcy or hitting drawdown threshold based on win rate and risk-reward ratio.
What is Statistical Risk of Ruin?
Risk of Ruin is a mathematical calculation that determines the probability of an account suffering a severe drawdown threshold (or complete loss of capital) given a specific win rate, risk-to-reward ratio, and percentage risk per trade. It is the definitive mathematical metric for evaluating whether a trading system is sustainable or destined for eventual bankruptcy.
The Interaction Between Win Rate, Risk %, and Edge
A positive mathematical edge exists whenever (Win Rate × Avg Win) > (Loss Rate × Avg Loss). However, even a strategy with a 60% win rate can have a 100% risk of ruin if the trader risks 10% of their account per trade! As risk per trade increases, statistical variance causes consecutive losing streaks that destroy account equity before the positive edge can play out.
How to Use This Risk of Ruin Calculator
Enter your account balance, risk percentage per trade, historical win rate %, average risk-to-reward ratio, and target drawdown threshold (e.g. 50% loss or 100% complete ruin). The calculator evaluates your mathematical edge, survival probability, and exact Risk of Ruin percentage.
How to Push Your Risk of Ruin to Exactly 0.0%
To achieve a 0% mathematical risk of ruin, two conditions must be met: 1) You must possess a verified positive expectancy (edge), and 2) Your risk per trade must remain under 1.5% to 2.0%. Keeping risk per trade low ensures you have enough capital units to endure normal 10-trade losing streaks without triggering catastrophic drawdown.
Frequently Asked Questions
What is a safe Risk of Ruin percentage for traders?
Professional trading desks mandate a Risk of Ruin below 0.1% to guarantee long-term survival.
Can a profitable trading system still have a high risk of ruin?
Yes! If position sizing is too aggressive, losing streaks will wipe out the account before the profitable edge materializes.
How many trades does it take to verify a win rate?
A statistically valid win rate requires a sample size of at least 100 to 200 backtested or forward-tested trades.