Risk of Ruin Calculator

In trading, Risk of Ruin is a mathematical concept used to calculate the probability of losing your entire trading capital (or hitting an unacceptable maximum drawdown point) based on your system's win rate, risk/reward metric, and risk per trade.

Many retail traders focus entirely on their win rate and ignore the statistical reality of a losing streak. Using this calculator allows you to mathematically prove the long-term viability of your trading edge. A robust strategy should yield an extremely low percentage probability of hitting your drawdown limit, typically under 1%.

Scenario: Your strategy has a 45% win rate, a 2:1 reward-to-risk ratio, you risk 2% per trade, and your max acceptable drawdown is 20%.

Step 1: Enter win rate: 45%

Step 2: Enter average reward:risk ratio: 2

Step 3: Enter risk per trade: 2%

Step 4: Enter max drawdown limit: 20%

Result: The calculator shows a probability of ruin around 2.5% with a positive expectancy of +0.35R per trade. This means over a large sample, you have a 97.5% chance of never hitting your drawdown limit.

What to adjust: If your probability is above 5%, either reduce risk per trade (try 1% instead of 2%), increase your reward ratio, or improve your win rate through better trade selection. The goal is to get below 1%.

Related reading: Learn how market structure and proper entry models can improve your win rate and reward ratio to lower your risk of ruin.