Risk of Ruin Calculator
Calculate the probability that your strategy hits a stopping drawdown before your edge has time to compound. Compare ruin probability at different position sizes, and run a Monte Carlo simulation across 2,000 equity paths.
System Parameters
Drawdown level that defines ruin for your purposes
Ruin Analysis
Avg win R ÷ avg loss R
Half-Kelly: 12.5%
At 2% risk per trade reaching −50% stop
Closed-form estimate for fixed-dollar risk
Ruin Probability at Different Risk Levels(55% win rate, 1.5/1.0R payoff, −50% stop)
| Risk per trade | Losses to ruin | Ruin probability |
|---|---|---|
| 0.25% | 200 | < 0.001% |
| 0.5% | 100 | < 0.001% |
| 1% | 50 | 0.004% |
| 2%← your setting | 25 | 0.7% |
| 3% | 17 | 3.5% |
| 5% | 10 | 13.4% |
| 10% | 5 | 36.7% |
Formula: R = ((1−p)/p)^(stop% ÷ risk%). Assumes fixed dollar risk per trade and equal average loss of 1R. Use Monte Carlo above for non-uniform payoffs.
Positive expectancy is not enough
A strategy that wins 55% of the time with 1:1 payoff has clear positive expectancy. But at 10% risk per trade, there is roughly a 1-in-7 chance of blowing up to a 50% drawdown before the edge compounds. Expectancy and ruin probability are independent measures.
Closed form vs Monte Carlo
The formula R = ((1−p)/p)^(stop%/risk%) is fast but assumes fixed dollar risk and symmetric outcomes. Monte Carlo simulates percentage-based compounding with your actual win/loss R values across 2,000 paths — more realistic for real trading.
What ruin threshold to use
Theoretical ruin is zero. In practice, most traders stop when a drawdown becomes emotionally unmanageable — typically 30–50% of account. Set the threshold at the drawdown level you actually would (and should) stop trading at, not zero.
Want real-time risk controls in your live system?
Calculating ruin probability is step one. Step two is building the system that enforces your position sizing rules automatically — with kill switches, daily loss limits, and portfolio heat tracking. Book a free diagnostic.