Risk of Ruin Calculator

What Is Risk of Ruin?

Risk of ruin is the probability that your trading account will eventually go to zero given your strategy's edge and risk management parameters. Even profitable strategies can have a non-trivial risk of ruin if position sizes are too large relative to capital.

Where Edge is your expected return per dollar risked and Risk Units is how many times you can risk your per-trade amount before the account hits zero (capital ÷ risk per trade). With a 0.2 edge and 2% risk per trade (50 risk units): ((1−0.2)/(1+0.2))^50 ≈ 0.0001% — negligible.

How Risk Per Trade Changes Everything

The same strategy with different risk levels produces dramatically different outcomes. A 0.2 edge strategy at 2% risk has negligible ruin probability; at 10% risk (10 risk units), RoR rises to ~1.73%. The difference is purely position sizing.

Edge vs Risk: The Trade-Off

A large edge can compensate for higher risk, but edge estimates are uncertain in real trading. Your actual win rate may be 5-10% lower than backtesting suggests. A 0.2 estimated edge that's actually 0.1 doubles the risk of ruin. Always assume your real edge is lower than your backtest suggests and size accordingly.

Frequently Asked Questions

What is risk of ruin in trading?

Risk of ruin is the probability that your trading account will go to zero given your edge, risk per trade, and capital. It's calculated as ((1-edge)/(1+edge))^N where edge is your expected return per dollar risked and N is the number of risk units.

What risk of ruin is acceptable?

Most professional traders target a risk of ruin below 1%. At 2% risk per trade with a 0.2 edge, RoR is negligible. At 10% risk per trade with the same edge, RoR rises to 1.73% — 1 in 58 traders with this profile goes bust.

How does risk per trade affect ruin probability?

Risk per trade is the most powerful lever for controlling ruin. Cutting risk from 5% to 2% increases survival units from 20 to 50 — and since RoR uses exponentiation, the difference is dramatic. A 0.2-edge strategy has 0.03% RoR at 5% risk vs 0.0001% at 2%.

Can a profitable strategy still have high risk of ruin?

Yes. A strategy with 0.1 edge and 10% risk per trade has ~13.5% risk of ruin despite being profitable on average. High risk per trade means a cold streak of 10 losses wipes out the account before the edge plays out.