What “ruin” means here
In the textbook version, ruin means losing everything. For a trader that definition is too generous: long before an account reaches zero, most people stop trading the system, a prop firm closes the evaluation, or the drawdown becomes too deep to recover in any reasonable time. This calculator therefore lets you define ruin as a drawdown: the fall from the starting balance at which you would be finished. Thirty percent is a sensible default for a personal account; a prop evaluation might use its own maximum loss limit, often 5% to 10%.
How the simulation works
The calculator plays out 10,000 separate sequences of trades. In each one, every trade risks the chosen percentage of the current balance, wins with your win rate and pays the payoff ratio times the risk, or loses the amount risked. It records whether that path ever touched the ruin level, its deepest drawdown from a high, and its longest losing streak. The random sequence is seeded, so the same inputs always give the same answer.
Simulation is used instead of a closed-form formula because the classic risk-of-ruin formulas assume fixed-size bets and equal wins and losses, which do not describe a trader risking a percentage of a changing balance with a payoff ratio above 1.
A worked example: the same edge at three risk levels
The figures loaded above describe a genuinely good strategy: a 45% win rate with winners twice the size of losers, an expectancy of +0.35R a trade. Over 500 trades, with ruin set at a 30% drawdown:
| Risk per trade | Chance of a 30% drawdown | Typical worst drawdown | 1-in-20 worst drawdown |
|---|---|---|---|
| 1% | below 0.01% | 11.5% | 18.2% |
| 2% | 0.31% | 21.9% | 33.6% |
| 5% | 11.15% | 48.3% | 66.2% |
Nothing about the strategy changed between the rows; only the size did. At 5% a trade, about one path in nine hits the 30% ruin level, and the typical trader on that path sits through a drawdown of nearly half the account. The average longest losing streak over 500 trades is about nine or ten in every row, because streaks depend on the win rate, not the size. What the size changes is how much each streak costs.
Lowering your risk of ruin
- Risk less per trade. It is the most powerful lever by far, as the table shows. Halving risk roughly halves the drawdowns.
- Size from current equity. Risking a percentage of the balance you have now shrinks positions during a losing run. Risking a fixed amount from the starting balance does not.
- Be honest about the edge. Ruin probability rises sharply as the edge shrinks. Use measured figures from enough trades; the expectancy calculator shows whether your sample is large enough.
- Treat the results as a floor. Real trades include slippage, gaps and streaks that cluster in difficult markets, all of which this model leaves out.
The risk of ruin guide explains how to choose a risk-per-trade figure from these results, and the Kelly criterion calculator gives the upper limit beyond which more risk only lowers growth.