Risk of Ruin Calculator
Estimate the probability that your strategy hits the maximum drawdown before your edge plays out, from win rate, reward-to-risk ratio, risk per trade and the drawdown budget. Uses the standard diffusion approximation of gambler’s-ruin theory — a well-known estimate, not an exact promise.
Results
How it works
Frequently asked questions
What is risk of ruin?
Risk of ruin is the probability that an account hits its maximum drawdown before the strategy’s positive expectancy can compound it away from danger. It rises sharply as you risk a bigger fraction of the drawdown budget per trade.
How can I reduce my risk of ruin?
Cut risk per trade relative to the drawdown budget — halving risk per trade squares the ruin probability in this model, which is a dramatic improvement. Improving win rate or reward-to-risk helps too, but position sizing is the lever you control immediately and completely.
Is this calculation exact?
No — it is the standard diffusion (random-walk) approximation used across trading literature, assuming independent trades with fixed fractional risk. Real trading violates those assumptions to some degree, so treat the output as a well-grounded estimate of magnitude, not a precise forecast.
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Free educational calculator. Not financial advice. Rules differ by firm — always verify exact values on your firm’s official site.