The definition
Risk of ruin is the chance that your account falls to a level you define as unacceptable, such as losing 50%, before your edge has time to work. "Ruin" does not have to mean zero. Many traders treat a 30% to 50% loss as ruin because recovery needs a 43% to 100% gain (see why a 50% loss needs a 100% gain).
What drives it
- Risk per trade. This is by far the biggest factor. Bigger bets need fewer losses to reach ruin.
- Win rate and payoff. A positive expectancy lowers ruin. With negative expectancy ruin is certain given enough trades.
- Time. The longer you trade, the more chances for a bad streak.
An example: the same strategy at three sizes
Take a strategy that wins 45% of trades with winners of 1.5 times the risk. It has a positive expectancy of +0.125R per trade. Over 500 trades, the chance of losing 50% of the account at three risk sizes is:
| Risk per trade | Chance of losing 50% |
|---|---|
| 2% | 0.4% |
| 5% | 18% |
| 10% | 57% |
The strategy never changes. Only the size does. At 10% a good strategy is more likely than not to lose half the account. These are simulated figures from 4,000 runs of the calculator, so they vary slightly between runs.
The formula, for the curious
For even-payoff bets with a win probability p above 50%, the long-run chance of ever losing B units is ((1 − p) ÷ p) raised to the power B. The risk of ruin calculator uses a more general version for any payoff plus a simulation that includes compounding and a finite number of trades.
How to lower it
- Cut risk per trade. Halving it cuts ruin dramatically.
- Avoid holding many correlated positions at once.
- Improve expectancy by raising win rate or payoff, or lowering costs.
- Check your plan in the strategy simulator with a slightly worse win rate than you expect.
Try it with your own numbers
Free calculators that do the math for you. No signup, and nothing leaves your browser.
A real edge makes sizing worth doing.
Position size controls how fast you can lose. A tested edge decides whether you should trade at all.
Keep reading
Last updated October 2026. For education only. Not financial advice.