Risk of Ruin Calculator (Monte Carlo)

What risk of ruin measures

Risk of ruin is the probability that a run of losses takes the account down to a level you cannot or will not trade through. A strategy with a genuine edge can still fail this test if each trade risks too much, because the order of wins and losses matters as much as their average.

How this calculator works

It runs 5,000 simulated sequences of trades. Each trade wins with the probability you enter. A win adds the payoff ratio times the amount risked, and a loss subtracts the amount risked. Risk is a fixed percentage of current equity, so position size shrinks after losses and grows after wins. A path counts as ruined the first time equity falls below your threshold.

expectancy (R) = win rate × payoff − (1 − win rate)
breakeven win rate = 1 ÷ (1 + payoff)

The simulation uses a fixed seed, so the same inputs always give the same answer. Change any input and it reruns.

Reading the result

Take the default inputs: a 45% win rate with winners 1.5 times the size of losers. Expectancy is positive at 0.125 R per trade, yet at 2% risk per trade a meaningful share of paths still touch a 30% drawdown at some point. Cutting risk to 1% shrinks that probability sharply while leaving expectancy in R unchanged. That trade-off is the point of the exercise.

Assumptions to keep in mind

• Trades are independent. Real strategies have losing streaks that cluster in certain market regimes.
• The win rate and payoff are known. In practice they are estimates from a finite sample and carry error.
• Costs, slippage and gaps beyond the stop are ignored unless you fold them into the payoff ratio.

Treat the output as a lower bound on danger. If the figure looks uncomfortable with clean inputs, it will look worse with real ones.