Risk of ruin is the probability that a strategy — even a profitable one — draws your account down through a threshold you cannot or will not trade past. It is the number that connects edge, sizing and survival: the same strategy can be safe at 0.5% risk per trade and near-certain ruin at 5%.
This calculator estimates it honestly: 5,000 simulated equity paths with compounding fixed-fractional risk, using a seeded random generator so the same inputs always reproduce the same answer. No closed-form formula handles unequal win/loss sizes with compounding without approximation — simulation does.
How to read the result
The headline number is the share of simulated paths that fell to your ruin threshold (default: losing 50% of starting capital) at any point within the horizon. The percentile outcomes show the spread: the median path is what “typical” looks like, and the bottom-10% path is the bad-luck sequence your sizing must survive — same strategy, same edge, just a different ordering of the same trades.
The most useful way to use it: hold your strategy numbers fixed and move ONLY the risk-per-trade slider. Watching ruin probability fall from 40% at 3% risk to under 1% at 0.5% risk — with the same edge — is the clearest argument for small sizing that exists.
Where the inputs should come from
From a real sample, not from hope: a backtest or journal of at least ~100 trades for the win rate and average win/loss in R. Our replay backtester produces exactly these numbers for every session, and the published strategy research shows what honest baselines look like (most lose — which is itself a risk-of-ruin lesson: a negative-expectancy rule ruins every account eventually, the sizing only decides when).
Frequently asked questions
What is risk of ruin?
The probability that an account falls to a level the trader treats as unrecoverable — classically zero, practically a drawdown limit like 50%, or a prop firm’s 10% maximum. It depends on win rate, win/loss sizes, risk per trade and how long you keep trading.
Why Monte Carlo instead of a formula?
Classic closed-form risk-of-ruin formulas assume equal-size wins and losses and non-compounding bets — neither holds for real trading. Simulating thousands of compounding equity paths handles any win/loss geometry, and seeding the random generator keeps the answer reproducible.
What risk of ruin is acceptable?
Professionals size so it is effectively zero — under 1% over any horizon they care about. If this calculator shows double digits, the fix is almost always the risk-per-trade input: ruin probability falls off a cliff as sizing shrinks, much faster than expectancy grows with sizing.