Risk of Ruin Calculator: Trading Survival Simulator

Calculate trading risk of ruin with Monte Carlo simulations. Test win rate, R:R, risk per trade, drawdown, trade count and account survival.

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Risk of Ruin Calculator: Trading Survival Simulator

What is the probability that my trading account blows up?

Risk of ruin is the estimated probability that a trading strategy reaches a user-defined loss or drawdown threshold within a specified number of trades.

It is a model-based estimate, not a prediction of future trading performance.

Your Trading Assumptions

Starting capital Account balance at the start of the simulation.

Account currency Currency does not change the percentage result — it only makes the outputs easier to read.

Trade Statistics

Win rate (%) Percentage of trades that historically close as winners.

Average win / loss entry mode

Average winning trade (currency) Must be ≥ 0. Example: $200.

Average losing trade (currency) Must be > 0. The average loss defines 1R — a losing trade is modeled as losing your full risk amount.

Reward-to-risk ratio (auto)

2.00R

R:R = Average Win ÷ Average Loss — calculated automatically, no separate calculator needed.

Risk per trade in currency

$200

Compounding: as equity falls, the risked amount shrinks with the account.

Risk Settings

Risk per trade (% of equity) 2% risk = $200 on a $10,000 account.

Ruin threshold (% drawdown)

The account decline you define as “ruin.” Reaching this level counts as failure even if the account later recovers.

Ruin measured from These are not identical: peak-to-valley keeps raising the base as new equity highs form. Both numbers are always reported.

Trading horizon (number of trades)

2% risk over 50 trades is not the same survival problem as 2% over 5,000 trades.

Advanced Settings (simulation paths, sizing model, costs, seed, uncertainty)

Simulation paths

Position sizing model Fixed % : risk shrinks/grows with equity. Fixed amount: risk exactly the same currency every trade.

Trading costs per trade (currency) Commission + spread + slippage, combined, in currency per trade. Used to compute net expectancy.

Historical trades measured (sample size) How many trades your win rate is based on. Small samples get a model warning and a confidence interval.

Confidence level (win-rate uncertainty)

Simulation seed (reproducible results) Same seed + same inputs = identical results. Share the URL to reproduce a scenario.

Live recalculation

Estimated Risk of Ruin

—

Estimated Survival Probability

—

Strategy Context (calculated automatically)

Drawdown Statistics

Ending balance distribution across all simulated paths
Percentile	P10	P25	Median (P50)	P75	P90

Losing Streaks & When Ruin Happens

“What if I change my risk?” — Risk Sensitivity

Same strategy, different risk per trade. Notice how ruin probability grows far faster than the risk itself — doubling risk does not double the danger.

Risk of ruin by risk per trade (quick re-simulation of 2,000 paths each)
Risk / trade	Risk of ruin	Verdict

Scenario Stress Test — “What if my numbers are wrong?”

This does not tell you what risk to take. It shows how sensitive the result is to your assumptions.

Scenario	Assumptions	Risk of ruin

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Accuracy note: this is a Monte Carlo estimate, not a prediction. Results converge within roughly ±0.5 percentage points at 10,000 paths and assume independent trades with fixed statistics. Real results cluster into winning and losing periods, and slippage, gaps and changing market conditions can alter outcomes.

Formulas Used in the Calculations

All formulas are rendered with MathJax and use your exact inputs. This page shows the math so you can verify every number.

1. Reward-to-risk ratio

\[ R_{:} = \frac{\text{Average Win}}{\text{Average Loss}} \]

2. Expectancy per trade (R and currency)

\begin{aligned} E_{R} &= W \times \overline{W}_{R} - (1-W) \times \overline{L}_{R} \\ E_{\$} &= E_{R} \times \text{risk}_{\$} \end{aligned}

Example: 55% win rate with a 2R average winner and 1R average loser gives $ E_R = 0.55 \times 2 - 0.45 \times 1 = +0.65R $ per trade. With 2% risk on $10,000 that is +$65/trade. Costs per trade are subtracted for net expectancy.

3. Break-even win rate

\[ W_{BE} = \frac{\text{Average Loss}}{\text{Average Win} + \text{Average Loss}} = \frac{1}{1 + R_{:}} \]

For a 2:1 reward-to-risk ratio: $ W_{BE} = 100 \div (200 + 100) = 33.33\% $.

4. Monte Carlo engine (default method)

\begin{aligned} \text{Win:}\quad E_{t+1} &= E_t \times \left(1 + r \times \overline{W}_{R}\right) - c \\ \text{Loss:}\quad E_{t+1} &= E_t \times \left(1 - r \times \overline{L}_{R}\right) - c \\ \text{Ruin:}\quad \frac{E_{\text{start}} - E_t}{E_{\text{start}}} &\geq D_{\text{ruin}} \quad \text{or} \quad \max_{s \le t}\frac{E_s - E_t}{E_s} \geq D_{\text{ruin}} \end{aligned}

Each path draws a win with probability $W$, applies the position-sizing rule (% of current equity or fixed currency), subtracts per-trade costs $c$, then checks the ruin threshold. $ \text{Risk of Ruin} = \dfrac{\text{ruined paths}}{\text{total paths}} $. This approach naturally handles asymmetric payoffs, compounding, finite horizons and path dependency — which is why it is the default over the closed form.

5. Closed-form approximation (sanity check)

\[ \text{RoR} \approx \left( \frac{1 - \text{edge}}{1 + \text{edge}} \right)^{U}, \qquad \text{edge} = W \times R_{:} - (1 - W) \]

$U$ = number of risk units between the starting balance and the ruin level. The closed form is exact only under restrictive assumptions (even payoffs, infinite horizon) — treat it as a rough cross-check of the simulation, not a replacement. Non-1:1 payoff cases are approximations.

6. Kelly criterion (context only — not advice)

\[ f^{*} = W - \frac{1 - W}{R_{:}} \]

Shown for context. Full Kelly is usually too aggressive in practice; the simulation — not Kelly — is what this tool is about.

7. Wilson score interval (win-rate uncertainty)

\[ \text{CI} = \frac{\hat{p} + \frac{z^2}{2n} \pm z\sqrt{\frac{\hat{p}(1-\hat{p})}{n} + \frac{z^2}{4n^2}}}{1 + \frac{z^2}{n}} \]

Used to build the plausible range around your observed win rate based on your historical sample size $n$. A 55% win rate from 30 trades is not the same evidence as 55% from 3,000 trades.

Frequently Asked Questions

What is risk of ruin in trading?

Risk of ruin is the estimated probability that your account reaches a loss or drawdown level you define as “ruin” — 20%, 30%, 50% down, a prop-firm maximum drawdown, or total loss — within a specified number of trades. It is a model-based estimate, not a prediction.

How is risk of ruin calculated?

Two ways. The classic closed-form gambler’s-ruin formula gives a quick approximation. The default here is a Monte Carlo simulation: thousands of randomized trading paths are generated from your win rate, average win/loss, risk per trade and horizon, and the share of paths that ever touch your threshold is reported.

Can a profitable trading strategy still go broke?

Yes — this is the core insight of the tool. A strategy with a positive expectancy can still hit a long losing sequence or a deep drawdown if the risk per trade is too large. Variance, not just edge, decides survival.

Does positive expectancy prevent ruin?

No. Expectancy is the average outcome over many trades; ruin is a path event. With 2% risk, even a 55% win rate at 2:1 can carry a meaningful ruin probability over hundreds of trades. Lower the risk per trade and the simulated survival rate rises sharply.

What is a good ruin threshold?

Whatever level ends your ability (or willingness) to keep trading: a personal pain threshold, a prop firm’s maximum drawdown, or a level from which recovery becomes statistically impractical. The calculator lets you set any threshold from 1% to 100% and measure both starting-balance and peak-to-valley versions.

What does 10% risk of ruin mean?

Under the simulated assumptions, roughly 10 out of every 100 accounts trading this strategy would reach your ruin threshold within the chosen number of trades. It is a frequency estimate across hypothetical paths, not a timetable for your specific account.

Is Monte Carlo better than the formula?

For real trading, generally yes. The closed form breaks down with uneven payoffs, finite trade horizons, compounding and path dependency — the simulation handles all four natively. The formula is still shown here as a transparent sanity check.

How does risk per trade affect risk of ruin?

Nonlinearly — this is the most important lesson in the tool. Doubling risk per trade far more than doubles the ruin probability. Use the risk sensitivity table to see simulated ruin rates at 0.5% through 10% with your own statistics.

Why did my result change when I pressed Calculate again?

It will not here. Every simulation uses a fixed seed (the Simulation ID), so identical inputs always reproduce identical results. Press “New Random Scenario” if you want a different random draw.

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© ExtensionHub.app — Educational modeling tool only. Nothing here is financial advice or a recommendation of any risk level; it shows how assumptions change simulated outcomes. Trading involves substantial risk of loss.

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Risk of Ruin Calculator: Trading Survival Simulator

Risk of Ruin Calculator: Trading Survival Simulator

Your Trading Assumptions

Trade Statistics

Reward-to-risk ratio (auto)

Risk per trade in currency

Risk Settings

Strategy Context (calculated automatically)

Drawdown Statistics

Losing Streaks & When Ruin Happens

“What if I change my risk?” — Risk Sensitivity

Scenario Stress Test — “What if my numbers are wrong?”

Win-rate uncertainty (sample-size check)

Share This Result

Embed this calculator

Simulated Equity Curves

Formulas Used in the Calculations

1. Reward-to-risk ratio

2. Expectancy per trade (R and currency)

3. Break-even win rate

4. Monte Carlo engine (default method)

5. Closed-form approximation (sanity check)

6. Kelly criterion (context only — not advice)

7. Wilson score interval (win-rate uncertainty)

Frequently Asked Questions

What is risk of ruin in trading?

How is risk of ruin calculated?

Can a profitable trading strategy still go broke?

Does positive expectancy prevent ruin?

What is a good ruin threshold?

What does 10% risk of ruin mean?

Is Monte Carlo better than the formula?

How does risk per trade affect risk of ruin?

Why did my result change when I pressed Calculate again?

More Free Trading Calculators

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