Risk of Ruin Calculator

Risk of ruin is the probability that a sequence of trades loses enough to hit a limit you have defined before the sequence ends. The word ruin sounds absolute, and in practice the threshold is a choice: for some people it means losing everything, and for most it means losing enough that they would stop. Which is why the threshold is an input here rather than fixed at a hundred percent.

The reason this is simulated rather than solved is that the classic closed-form results assume simplifications that do not hold here, such as every win and loss being the same size. Once the payoff ratio can be any value and the stake is a percentage of a balance that moves, the arithmetic stops being tractable and the honest approach is to generate many sequences and count how many breach the limit. That is exactly what this does, with a fixed random seed so the answer is stable rather than shifting each time you look at it.

Each simulated trade risks a fixed percentage of the current balance, which means the stake shrinks as the balance falls. This matters: fixed-fractional staking is self-limiting in a way that fixed-size staking is not, because each successive loss is smaller in absolute terms. It is also why the ruin threshold has to be less than a hundred percent for the question to make sense, since a percentage of a positive balance never quite reaches zero.

The single most important thing to check is the edge, shown alongside the main figure. If the expected result per trade is zero or negative, the risk-of-ruin number is not describing a risk you can manage by sizing. Extend the number of trades and it approaches certainty. Halving the risk per trade roughly doubles how long it takes and does not change where it ends up. Sizing controls the pace of a negative-expectancy outcome, not the outcome.

When the edge is positive, the number is genuinely informative, and the thing it usually reveals is how sharply it responds to the risk per trade. The relationship is not linear. Going from one percent to two percent per trade typically increases the ruin probability by much more than double, because each larger loss leaves a smaller base from which to recover, and the asymmetry compounds. Try it: change only the risk figure and watch.

The inputs deserve scepticism too. A win probability and payoff ratio taken from a backtest are sample statistics, and a sample of thirty or fifty trades estimates them loosely. If the real win rate is five points lower than your sample suggested, the ruin figure changes considerably. Running the calculation two or three times with slightly pessimistic inputs is more informative than running it once with the numbers you hope are right. Our trade expectancy calculator and Kelly criterion calculator work with the same two inputs from different angles.

Finally, the framing. This is a calculator, and choosing a risk level or a ruin threshold is entirely your decision. Nothing here recommends any figure, and a low simulated ruin probability is not a statement that an approach is safe or that any particular outcome is likely.

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