Risk of Ruin Calculator
Risk of ruin is the probability that a losing run ends your account before your edge pays out. Enter your payoff ratio, win rate and the percentage of equity you risk per trade to get that probability.
The formula
This is the classic gambler's-ruin closed form, the same model every other risk-of-ruin calculator uses:
edge = (W·R − L) / (W·R + L) ruin = ((1 − edge) / (1 + edge)) ^ (100 / risk%)
W is the win rate, L is 1 − W, and R is the payoff ratio. The exponent is how many units of equity you have: risking 2% per trade means 50 units, so you must lose 50 net units to be wiped out.
Risk per trade dominates everything
Hold the default 50% win rate and 1.5:1 payoff steady and change only the sizing:
| Risk per trade | Units of equity | Risk of ruin |
|---|---|---|
| 1% | 100 | ≈ 0.0000000000000002% |
| 2% | 50 | ≈ 0.0000002% |
| 5% | 20 | ≈ 0.03% |
| 10% | 10 | ≈ 1.7% |
| 20% | 5 | ≈ 13.2% |
Same edge in every row — a 50% win rate at 1.5:1 is a genuinely good system, and it stays a good system in every line. The only variable is size, and it moves the outcome from an impossibility to better-than-one-in-eight. This is the entire argument for the 1–2% convention, and it is arithmetic rather than folklore.
Note how non-linear it is. Going from 1% to 2% barely registers; going from 10% to 20% multiplies the risk roughly eightfold. The damage is concentrated at the aggressive end, which is exactly where the temptation is.
Without an edge, size only changes the timing
Set the win rate low enough that edge goes to zero or below and the answer is 100%. Not "high" — certain, given enough trades. Position sizing cannot rescue a negative-expectancy system; it determines how long the account takes to disappear, not whether it does.
Where this model is wrong, and in which direction
The closed form assumes fixed-unit betting: the same dollar risk every trade regardless of what the account has done. Real traders size fixed-fractional — 2% of whatever the balance currently is — which means the bet shrinks as the account shrinks. That process asymptotes toward zero rather than hitting it, so true ruin becomes very unlikely and the meaningful question becomes drawdown depth instead.
So this number overstates ruin for a fixed-fractional trader. It is still the right model to publish: it is the standard, it is conservative in the safe direction, and the ranking it produces across sizing choices is correct even where the absolute level is pessimistic. For the fixed-fractional question, what you want is drawdown depth — see the drawdown recovery calculator and the losing streak calculator.
The input everyone gets wrong
Win rate. A trader who believes they win 55% and actually wins 45% is not slightly off — at 2% risk that is the difference between a 0.03% chance of ruin and a certainty of it. The number has to come from a complete record of every trade taken, including the ones that are unpleasant to count. Recorded after the fact, from memory, it is reliably too high.
Why size dominates edge here
Kelly's 1956 paper established the relationship this calculator sits on the tail of: growth is maximised at a finite fraction of capital, and exceeding it reduces long-run growth without changing the edge at all.[1] Ruin is what that looks like at the extreme.
The number is the easy part
Everything above is arithmetic, and anyone opening this page gets the same answer. What no calculator can settle is whether you took the trade on these terms, or are describing — afterwards — the version of it that worked out.
That is what a trade recorder is for: the trade committed before it resolves, timestamped and sealed on the spot, on a Merkle-anchored log a stranger can check without kappi's cooperation. The plan you typed here stops being a plan you remember having. $15/month, no free tier.
Sources
Frequently asked questions
What is risk of ruin?
The probability that a sequence of losses reduces your account to nothing before your edge produces a profit. It depends on win rate, payoff ratio and how much you risk per trade.
What is a safe risk of ruin?
Under 1% is the usual target, and with a genuine edge that generally means risking 1–2% of equity per trade. Above 10% the sizing is too aggressive for the edge.
Does this formula assume fixed dollar risk?
Yes — it is the classic gambler's-ruin model with fixed-unit sizing. Risking a fixed percentage of a shrinking account ruins more slowly, so this figure is conservative.
Can position sizing fix a losing strategy?
No. If expectancy is zero or negative, risk of ruin is 100% given enough trades. Sizing changes how long the account lasts, not the destination.
Why does risking 5% instead of 2% matter so much?
Because the exponent is your number of equity units. At 2% you have 50 units to lose; at 5% only 20. In the default that moves ruin from about 0.2% to about 12%.