Change ACCOUNT CURRENCY and CURRENCY PAIR
The Risk of Ruin Calculator is the most sobering tool in any trader’s arsenal — it calculates the statistical probability that you’ll lose your entire trading account (or a defined portion of it) given your current trading parameters.
What inputs does it need?
- Win rate — the percentage of your trades that are profitable (e.g. 55%)
- Risk per trade — what percentage of your account you risk each trade (e.g. 1%)
- Risk/reward ratio — how much you make on winners vs. lose on losers (e.g. 1:2)
- Number of trades — how many trades you plan to take
- Ruin threshold — at what drawdown level you consider yourself “ruined” (e.g. 50% account loss)
What does it calculate?
Risk of Ruin = ((1 – Edge) ÷ (1 + Edge)) ^ (Capital Units)
Where Edge = (Win rate × Reward) − (Loss rate × Risk)
Example with 50% win rate, 1:1 risk/reward, risking 5% per trade:
- Edge = 0 — Risk of ruin = 100% (you will eventually blow up)
Same setup but with 55% win rate and 1:2 risk/reward:
- Edge is positive — ruin probability drops dramatically with proper sizing
Why is it useful?
- It mathematically proves that position sizing matters more than win rate alone
- A trader with a 60% win rate but 10% risk per trade is far more likely to blow up than one with a 45% win rate risking 1%
- It quantifies the invisible danger of drawdown sequences that feel unlikely but are statistically inevitable
What it reveals about losing streaks: Even a profitable strategy will hit losing streaks. With a 55% win rate, consecutive loss runs are more common than most traders expect:
| Consecutive losses | Probability |
| 3 in a row | 9.1% |
| 5 in a row | 1.8% |
| 7 in a row | 0.4% |
| 10 in a row | 0.03% |
Over hundreds of trades, even a 10-loss streak becomes a near-certainty at some point — the question is whether your account can survive it.
The core lesson it teaches: A strategy can have a positive expected value and still ruin you if your position sizing is too aggressive. The calculator makes this concrete with a single probability number — making it the ultimate argument for never risking more than 1–2% per trade.
How it connects to other calculators: It sits at the top of the risk management pyramid. Feed it the output from your Lot Size Calculator and your historical win rate, and it tells you whether your overall approach is survivable over the long run. Think of it as the stress test for your entire trading system.