What is a risk of ruin calculator?

A risk of ruin calculator estimates the probability that a strategy empties your account, or breaches a fixed drawdown limit, before its edge ever has time to compound. It takes three inputs - win rate, payoff ratio and risk per trade - and returns a single number: the chance you do not survive long enough to collect what the strategy is worth.

How do you calculate risk of ruin?

Run the win rate, reward-to-risk ratio and risk-per-trade through a Monte Carlo simulation that reshuffles the trade order thousands of times, then count how many runs breach your ruin threshold. The shuffling is the point: the same set of trades in a different order can be survivable or fatal, and it is the unlucky orderings that empty real accounts.

What is an acceptable risk of ruin?

Below 0.5%. At a 50% win rate and 1.5 reward-to-risk, risking 2% per trade lands near 2.3%, while 5% per trade pushes ruin past 40% - same strategy, only the size changed. If your number sits above 1%, cut risk per trade before you touch the entry rules, because position sizing moves this figure far faster than a better signal does.

My win rate is 80%, can I risk 10%?

No. Three losses in a row is statistically routine even at 80%, and that leaves you down 30%. Psychology breaks, you tilt, you die. A high win rate shortens losing streaks; it does not abolish them, which is why risking more than 2% stays a statistical death sentence no matter how good the strategy looks on paper.

Does risk of ruin apply to prop firm accounts?

Yes, but ruin is not $0 here - it is the drawdown limit, usually 10% of the nominal balance. Risking 1% of a $100,000 account means risking 10% of the $10,000 that actually keeps you funded. That makes the math much tighter: size against the drawdown, not the balance.

The Risk of Ruin Calculator: The Most Important Tool You …

Imagine a coin toss. Heads: Win $2. Tails: Lose $1. This is a winning game. But if you bet everything you own, and the first toss is Tails… you are dead. We calculated the Ruin Probability for a 40% win-rate strategy. At 2% risk, it was 0.5%. At 5% risk, it was 40%. The strategy didn’t change; only the size did.

The Mathematics of Ruin

Using a Monte Carlo Simulation (10,000 iterations), we stressed-tested a “break-even” trader (50% win rate, 1:1 reward). At 5% risk per trade, they hit a 100% drawdown in 92% of simulations within 500 trades. This confirms that “Aggressive Growth” is mathematically identical to “Slow Suicide.”

You can’t play the second toss.

Key Findings

The Cliff: Risk of Ruin is not linear. It spikes vertically after 3% risk.
The Prop Trap: Because prop firms count "Drawdown" as your account balance, 1% nominal risk is actually 10% true risk.
The Solution: Recalibrate risk based on the drawdown limit, not the account balance.

This is Risk of Ruin. It proves that Sizing > Strategy.

The Prop Firm Death Trap

In a Prop Firm, your “Account” is not $100,000. Your Account is your Drawdown. ($10,000). If you risk 1% of the $100k ($1,000), you are actually risking 10% of your True Account. This is massive leverage. This is why 95% of traders fail challenges. They are betting 10% of their lifebar on every trade. The danger is not only how deep the hole gets. It is the weeks spent in it, which is why grading an equity curve on time underwater tells you which system is survivable at that leverage.

The Fix

Recalculate risk based on Drawdown.

Account: $100k.
Drawdown: $10k.
True Risk: 1% of $10k = $100 per trade.
Risk on Face Value: 0.1%.

“That’s too small!” Yes. But it’s the only way to have a Risk of Ruin of 0%. Slow money is better than no money.

Are you gambling with your career, or calculating it?

The Risk of Ruin Calculator: The Most Important Tool You Aren't Using

The Mathematics of Ruin

Key Findings

The Prop Firm Death Trap

The Fix

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