Risk of Ruin Calculator
Calculate the probability that your trading account reaches zero (or a defined drawdown limit) before reaching your profit target. Essential for position sizing and risk management.
Risk Parameters
Risk of Ruin Formula
RoR = ((1 − edge) / (1 + edge)) ^ (capital / risk_per_trade) (Win Rate × R/R) − Loss Rate log(1 − ruin_level) / log(1 − risk_per_trade) Risk of Ruin (RoR) is the probability that your account will be reduced to zero (or a defined ruin level) before reaching your profit target. Even a profitable strategy can blow up an account if position sizing is too aggressive.
The key insight: risk per trade has an exponential effect on RoR. Risking 5% per trade with a 55% win rate gives a dramatically higher ruin probability than risking 1% — even though the edge is identical.
Risk of Ruin Reference Table
Approximate RoR% for a 55% win rate strategy with 2:1 R/R, targeting 100% gain before 50% drawdown ruin.
| Risk per Trade | Approx. RoR | Consecutive Losses to Ruin | Assessment |
|---|---|---|---|
| 0.5% | < 0.1% | 139 | Very Safe |
| 1% | ~0.5% | 70 | Safe |
| 2% | ~3% | 35 | Caution |
| 5% | ~18% | 14 | High Risk |
| 10% | ~45% | 7 | Very High Risk |
| 20% | ~75% | 4 | Near Certain Ruin |
Frequently Asked Questions
What is Risk of Ruin in trading?
Risk of Ruin (RoR) is the probability that a trader will lose their entire trading account (or a defined drawdown threshold) before reaching a profit target. It combines your win rate, reward-to-risk ratio, and the percentage of capital risked per trade. Even a profitable strategy can have a high RoR if position sizes are too large.
What is an acceptable Risk of Ruin percentage?
Professional traders typically target a RoR below 1%. A RoR above 5% is considered dangerous for live trading. If your RoR is above 10%, you should immediately reduce position size or improve your strategy's win rate before trading real capital.
How can I reduce my Risk of Ruin?
Three levers directly reduce RoR: (1) Reduce position size — risking 0.5% per trade instead of 2% dramatically lowers RoR; (2) Improve win rate — even small improvements compound significantly; (3) Improve R/R ratio — larger winners relative to losers mean fewer consecutive losses needed to ruin. Reducing position size is the fastest and most reliable lever.
What is the difference between Risk of Ruin and maximum drawdown?
Maximum drawdown is the largest peak-to-trough decline you have experienced (historical). Risk of Ruin is a forward-looking probability of hitting a catastrophic loss threshold. RoR accounts for the statistical distribution of your trades, while max drawdown only reflects what has already happened.
Does Risk of Ruin apply to crypto trading?
Yes — and it's especially important in crypto due to high volatility and 24/7 markets. Crypto traders often face larger-than-expected drawdowns from overnight gaps, flash crashes, and exchange liquidations. We recommend targeting a RoR below 0.5% for crypto trading and using conservative position sizing of 0.5–1% of account per trade.
Calculator Limitations
- Simplified formula: This calculator uses the gambler's ruin formula adapted for trading. It assumes independent, identically distributed trades — real markets have autocorrelation and regime changes.
- Fixed parameters: Win rate and R/R ratio are assumed constant. In live trading, both vary by market condition, session, and instrument.
- No Kelly Criterion: This tool does not calculate optimal position size. For Kelly-based sizing, use the Trading Expectancy Calculator alongside this tool.
- No correlation: If you trade multiple correlated instruments simultaneously, actual RoR is higher than shown because losses can occur in multiple positions at once.
- Ruin threshold: The default 100% ruin threshold means total account loss. In practice, many traders define "ruin" as a 20–50% drawdown that triggers a trading halt.