What is risk of ruin?

Risk of ruin is the probability that a sequence of losses takes your account below a level you consider unrecoverable, before your edge has time to play out. A strategy can have positive expectancy and still ruin you if the position size is large enough that a normal losing streak wipes you out first.

Why does a profitable strategy still have a risk of ruin?

Because outcomes arrive in a random order. Positive expectancy tells you the average of a long run, not the path it takes. Ten losses in a row is entirely normal at a 45% win rate, and at 5% risk per trade that sequence costs about 40% of the account regardless of how good the strategy is over a thousand trades.

How much should I risk per trade to keep risk of ruin low?

Run the numbers rather than trusting a rule of thumb, but the pattern is consistent: dropping from 5% to 2% per trade typically cuts risk of ruin by an order of magnitude, and 1% is close to negligible for any strategy with a genuine edge. The cost is slower compounding, which is the trade being made.

How is this calculated?

By Monte Carlo simulation — 2,000 independent runs of 200 trades each — rather than the closed-form gambler’s-ruin formula. The classic formula assumes a fixed stake, whereas risking a percentage of a changing balance produces a different distribution: ruin becomes less likely but drawdowns run deeper.

Risk of ruin simulator

A strategy with a real edge can still destroy an account if the position size is wrong. This simulates thousands of possible trade sequences to show how often yours ends badly — and how deep the drawdown gets even when it doesn't.

Win rate

Reward:risk

Risk per trade

Ruin threshold

Drawdown you'd call game over.

Risk of ruin

0.0%

over 200 trades

Median worst drawdown

17.0%

Worst case seen

44.1%

Median end balance

3.92×

Risking 2.0% per trade at a 45.0% win rate and 2.0:1, roughly 0.0% of 200-trade runs hit a 50% drawdown. Even the runs that survive typically see a 17.0% drawdown along the way.

Monte Carlo over 2,000 independent runs of 200 trades, compounding — each trade risks the chosen percentage of the current balance, which is how position sizing actually behaves. Figures move slightly between recalculations because the simulation is random; that variance is real and worth seeing.

The uncomfortable finding most people meet here for the first time: the difference between 2% and 5% risk per trade is not 2.5× more risk. It is frequently the difference between a survivable drawdown and a dead account, because losses compound against a shrinking base.

Check your edge is real first with the expectancy calculator, size each trade with the position size calculator, and see what a normal losing run looks like in the losing streak simulator.

Frequently asked questions

What is risk of ruin?: Risk of ruin is the probability that a sequence of losses takes your account below a level you consider unrecoverable, before your edge has time to play out. A strategy can have positive expectancy and still ruin you if the position size is large enough that a normal losing streak wipes you out first.
Why does a profitable strategy still have a risk of ruin?: Because outcomes arrive in a random order. Positive expectancy tells you the average of a long run, not the path it takes. Ten losses in a row is entirely normal at a 45% win rate, and at 5% risk per trade that sequence costs about 40% of the account regardless of how good the strategy is over a thousand trades.
How much should I risk per trade to keep risk of ruin low?: Run the numbers rather than trusting a rule of thumb, but the pattern is consistent: dropping from 5% to 2% per trade typically cuts risk of ruin by an order of magnitude, and 1% is close to negligible for any strategy with a genuine edge. The cost is slower compounding, which is the trade being made.
How is this calculated?: By Monte Carlo simulation — 2,000 independent runs of 200 trades each — rather than the closed-form gambler’s-ruin formula. The classic formula assumes a fixed stake, whereas risking a percentage of a changing balance produces a different distribution: ruin becomes less likely but drawdowns run deeper.

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These calculators are educational and are not financial advice. They describe arithmetic, not outcomes — no position size makes a losing strategy profitable. Trading carries risk, including loss of capital.