Risk of Ruin Calculator

key_takeaways

Key takeaways

• The estimate of your risk of ruin is the share of simulated runs that touched a loss limit.
• A trailing floor moves up with every new equity high; a static floor stays where it started.
• The same inputs always give the same result, because the random draws use a fixed seed.

It runs a Monte Carlo simulation of ten thousand trade sequences in your browser and shows the odds, the typical number of trades and the share of runs that end with no result.

How to use the risk of ruin calculator

1. Enter your win rate and your average reward-to-risk ratio. An R:R of two means a win pays twice what a loss costs.
2. Enter the risk per trade and choose whether it is taken of the starting balance or of current equity.
3. Enter the max loss limit from your own rules. Add a profit target only if your rules define one.
4. Pick static or trailing, then set the maximum number of trades you want to look at.
5. Add a daily loss limit and trades per day only if you want the daily limit in the simulation.

Results update as you type. The big number counts every run that touched a loss limit, the tiles split it into causes, and the chart shows when the runs ended. The calculator opens with the hypothetical values of the worked example on this page, marked as example values. Replace them with your own, or press Clear to empty every field. The tool does not know your rules, so enter your own limit, target and trade count.

Risk of ruin formula

p = win rate          q = 1 - p          r = q / p
a = loss limit / risk per trade      (steps down to the floor)
b = target / risk per trade          (steps up to the target)

p = q (fair coin):   P(target first) = a / (a + b)
p != q:              P(target first) = (1 - r^a) / (1 - r^(a + b))
P(floor first) = 1 - P(target first)      with unlimited trades

expectancy per trade = win rate x R:R - (1 - win rate)   (in R)

This closed form holds for fixed risk, a payoff equal to the risk, a static floor and no trade cap.

Monte Carlo simulation of your trade sequence

With another R:R, compounding risk, a trailing floor, a daily limit or a trade cap there is no simple formula, so the calculator runs a Monte Carlo simulation instead. It plays out ten thousand trade sequences. For each trade it draws a random number, adds a win of your R:R or subtracts a loss, and stops the run when equity touches the floor or the target. The share of runs that touched a floor is the estimate of your risk of ruin, and the sampling margin next to it shows how far a sample of this size can be off. The random draws use a fixed seed, so the same inputs always give the same result.

Worked example

What does ruin mean when your rules have a loss limit?

In a rule-based account ruin is the touch of the floor, not a slow bleed to zero. The floor is a fixed distance from the start for a static limit, or a fixed distance below the highest equity so far for a trailing limit. Because an uncapped trailing floor rises with every new high, the room between equity and floor never grows beyond the limit, however far the account is up. With a static floor every gain adds room, so under a trailing limit the same account is more fragile after it has done well.

A daily limit adds a second floor that resets each day. It is only part of the simulation when you give trades per day, because without a day structure there is no day to reset. Your rules may measure the daily limit against a different base, so check them. This calculator uses the day’s opening equity and says so. For the background, read what a drawdown is.

How many losses in a row can you take?

The tile “Losses in a row to the limit” answers the losing-streak question without any randomness: how many full-risk losses in a row reach the max loss limit. With risk taken of the starting balance it is the limit divided by the risk, rounded up. With risk taken of current equity each loss is a little smaller than the one before, so slightly more losses fit. The table below fills in from your own limit and risk.

How likely is a losing streak?

The chance of a losing streak depends only on your win rate and on how many trades you take. The table works it out exactly, without simulation: it follows the length of the current losing run trade by trade and adds up the chance that a streak of at least that length shows up anywhere within your trade count, not only at the start. The rows sit around the streak that reaches your max loss limit with risk taken of the starting balance.

Do a higher win rate or a better R:R lower the risk of ruin?

Both do, through expectancy. In the worked example, a lower win rate with the same R:R raises the chance of touching the limit first, and a higher R:R with the same win rate lowers it. A target further away is usually hit less often, so a higher R:R usually comes with a lower win rate: enter both as you measure them, and check the median trades tile as well. Smaller risk per trade needs more losses to reach the limit and more wins to reach the target. With a positive expectancy that lowers the odds of ruin; with a negative expectancy and a target it can raise them. If you need the R:R and the break-even win rate first, the risk/reward calculator works them out.

Limits of this calculator

• Trades are independent with one constant win rate. Streaks in your own results and changes in market conditions are not modelled.
• Every win pays exactly your R:R and every loss costs exactly one unit of risk. Slippage, fees and gaps are not modelled.
• Touching a level counts as hitting it. Price swings inside a trade are not modelled.
• The trailing floor rises without a cap. Your rules may stop it at a level or count open profit differently.
• The daily limit uses the day’s opening equity and only runs with trades per day. If a trade touches both floors at once, it counts as a max loss hit.
• The simulation is a sample, so the result carries a sampling margin. The page shows it next to the result.
• No rule data is built in. Every limit comes from you.

Risk of ruin questions

What is risk of ruin in trading?

Risk of ruin is the probability that your account loses enough to hit a defined floor before something else happens, such as reaching a profit target or running out of planned trades. In a rule-based account the floor is the loss limit. This calculator estimates it by playing out many random trade sequences with your inputs.

How do you calculate risk of ruin?

For the textbook case, with a fixed risk per trade, a win that pays the same as a loss, a static floor and no limit on the number of trades, there is a closed formula. With p the win rate, q = 1 - p and r = q / p, the chance of reaching the target first is (1 - r^a) / (1 - r^(a + b)), where a and b are the distances to the floor and to the target in units of risk. Risk of ruin is one minus that. For any other setup you simulate the trade sequence, which is what this calculator does. The worked example shows both side by side.

What is the probability of ruin?

It is the same quantity stated as a probability: the chance that equity touches the floor before the target, or before the planned trades run out. It rises with a floor closer to the start, and it falls with a higher win rate or a better R:R at the same win rate. Risk per trade cuts both ways: with a positive expectancy a smaller risk lowers it, with a negative expectancy and a target a smaller risk can raise it.

What is a good risk of ruin?

There is no universal threshold. It depends on what a loss costs you and how much you can afford to lose. The calculator shows how the number reacts when you change risk per trade, R:R or the limit, which is more useful than a single target figure.

What counts as ruin when my rules have a loss limit?

Ruin here means equity touches the floor, not just a close beyond it. The calculator treats touching the limit as a breach. Check whether your own rules count floating losses and when your daily limit resets.

How likely is a losing streak?

That depends only on your win rate and on how many trades you take. The losing streak table on this page works it out exactly from your own inputs, for streaks around the length that reaches your max loss limit.

Does it simulate a daily loss limit?

Only if you enter both a daily limit and the number of trades per day. Each simulated day then starts from that day’s opening equity. If you leave trades per day empty, only the overall limit is simulated and the page says so.

Is the simulation a prediction?

No. It assumes independent trades, a constant win rate and fixed outcomes: one loss unit, or one win of your R:R. Streaks in your own results, varying sizes, slippage and fees are not part of the model. Use it to compare settings against each other, not to forecast your own results.