Risk of Ruin Calculator for Traders

What is the Risk of Ruin Calculator?

The Risk of Ruin Calculator is a powerful risk management tool designed to estimate the probability of a trader losing all or a significant portion of their trading capital.

Based on the Monte Carlo simulation, it factors in key elements such as your win rate, risk-to-reward ratio, and position sizing to easily calculate how likely it is that your account could hit zero (or an unacceptable drawdown) over time.

By showing you the potential dangers of poor risk control, the calculator gives traders a clear picture of how sustainable their trading strategy really is. Instead of relying solely on profit potential, it emphasizes the importance of capital preservation, helping you fine-tune your approach so you can stay in the game longer and trade with greater confidence.

Why is a Risk of Ruin Calculator Important?

A Risk of Ruin Calculator is important because it shows traders the hard truth about how long their strategy can realistically survive in the markets. In other words, it helps you be on the safe side by building a successful trading strategy before you risk capital in the market.

Many traders focus only on potential profits, but ignoring the probability of wiping out their account can be devastating. By factoring in win rate, risk-to-reward ratio, and position sizing, the calculator highlights whether your trading approach is sustainable or dangerously fragile.

This insight helps you adjust risk levels, protect your capital, and build a strategy that can withstand inevitable losing streaks—turning risk management into your strongest edge.

How to Use Our Risk of Ruin Calculator?

The Risk of Ruin Calculator is designed to show how likely your trading strategy is to deplete your account under specific conditions. By entering a few key details about your trading approach, you can quickly see the probability of ruin and adjust your risk management for better long-term survival. Enter this data to get started.

Here's how to use our Risk of Ruin calculator:

Enter Win Rate (%)

The win rate percentage of trades you expect to win (e.g., 45). It drives how often losses cluster.

Enter Risk-Reward Ratio

Your average loss vs. average gain (e.g., 1:2 means risking 1 to make 2). Higher ratios lower ruin risk.

Set Risk per Trade (%)

The risk percentage fraction of your account you're willing to lose on a single trade (commonly 0.5-2%). Lower = safer.

Choose Number of Trades

How many trades do you plan to run this test over (your horizon). More trades = a tougher stress test.

Add Initial Capital

Your starting account balance size. Used to translate % risk into actual dollars and track starting equity changes.

Set Max Drawdown (as "Ruin")

The equity drop you consider unacceptable (e.g., 50% or full 100% wipeout). The calculator treats reaching this level as "ruin," or the "risk capital."

Calculate

Hit Calculate to see your probability of ruin (and survival). Use the result to tweak inputs—reduce risk per trade, improve RR, or aim for a higher win rate—to bring ruin odds down.

FAQs

Read our frequently asked questions below. If you still need help, contact us today.

What is the risk of ruin concept in trading?

The risk of ruin in trading is the probability that a trader will lose so much of their capital that they can no longer continue trading or recover. In essence, it is a statistical tool that calculates risk and measures the likelihood of hitting a critical drawdown or complete account loss based on factors like win rate, risk-to-reward ratio, and position sizing. The concept emphasizes that even a profitable strategy can fail if risk is poorly managed, making it a crucial tool for planning trades, sizing positions, and protecting your trading capital over the long term.

How accurate is the risk of ruin calculator?

The Risk of Ruin Calculator is a highly useful indicator to test your trading strategies, but its accuracy depends on the quality of the inputs you provide. It assumes your win rate, risk-to-reward ratio, and risk per trade remain consistent over time, which in real trading isn't always the case—markets change, emotions interfere, and results can vary. While the calculator gives a strong statistical estimate of your strategy's survival chances, it should be seen as a probability model, not a guarantee. Overall, if used correctly, it's a reliable tool with accurate results for highlighting weaknesses in your risk management and helping you make smarter adjustments before putting real money at risk.

How do you calculate the risk of ruin in trading?

The risk of ruin in trading is calculated by combining your win rate, risk-to-reward ratio, and risk per trade to estimate the probability of your account hitting zero or a set drawdown level. In simple terms, the risk of ruin calculation measures how likely a series of losses could wipe you out. The risk of ruin formula often compares the probability of losing trades versus winning trades, adjusted for position sizing, but most traders use a calculator to quickly simulate thousands of trades and see their true odds of survival.

What are the key methods to reduce your risk of ruin in trading?

The key methods to reduce your risk of ruin in trading include: keeping your risk per trade small (usually 1–2% of your account), aiming for a favorable risk-to-reward ratio so winners outweigh losers, and focusing on a consistent trading strategy with a positive edge. Moreover, you should focus on the following factors as part of your trading system: Diversifying across instruments, limiting leverage, and sticking to strict risk management rules also help protect your capital. Most importantly, maintaining discipline and avoiding emotional overtrading ensures you preserve your account and stay in the game long enough for your edge to play out.

More Free Tools Brought to you by Switch Markets

Explore benefits and free extras such as other financial calculators you can get if you open an account with Switch Markets.

Forex Profit Calculator

Calculate your profits and losses before or after executing a trade with our free Forex Profit Calculator.

Use Calculator

Forex Lot Size Calculator

Use our simple yet powerful Forex Lot Size Calculator to calculate the exact position size for each trade and manage your risk per trade like a pro.

Use Calculator

Forex Economic Calendar

Access our free economic calendar and explore key global events on the horizon that could subtly shift or substantially shake up the financial markets.

View Calendar

Currency Strength Meter

Compare the performance of major currencies relative to others in real-time with our advanced Currency Strength Meter.

Learn More

Forex Swap Calculator

Calculate the swap rate for holding Forex positions overnight before you execute a trade with our free Forex Swap Rate Calculator.

Use Calculator

Forex Compound Calculator

Use our Forex compound calculator and simulate the profits you might earn on your Forex trading account.

Use Calculator