Most traders size their positions by feel, or by a rule someone told them once. The risk of ruin calculator below replaces the feel with a number: the probability that your account falls to a level you cannot come back from, given the system you actually trade and the size you actually trade it at.
It runs a full Monte Carlo simulation in your browser. Nothing you type leaves your computer.
The percentage of your trades that are winners.
2.5 means your average winner is 2.5 times the size of your average loser.
What you lose if one position goes straight to its stop.
How far ahead to look. 500 trades is a few years for most swing traders.
The loss that ends your trading, financially or psychologically.
Set this to the loss that would actually make you stop, not the loss that would bankrupt you. Most traders quit long before zero.
Used only to show results in dollars. It does not change any probability.
Every other risk of ruin calculator assumes your trades happen one at a time and have nothing to do with each other. Real portfolios hold several positions at once, and in a bad week they all fall together. These two inputs are the difference between a comforting number and a useful one.
How many open trades you typically carry. Set this to 1 to see the answer every other calculator gives you.
0 means they move independently. 1 means they are one trade repeated. Long-only stock portfolios in a falling market behave like 0.5 to 0.8.
Look at the gap in the tiles above. Treating your trades as independent puts your risk of ruin at under 0.01%. Holding 10 correlated positions at once puts it at 8.7%. That gap is what other calculators hide from you.
The biggest position size that still keeps your risk of ruin under at your position count and correlation.
Equity is on a log scale, so halving and doubling take up the same amount of space.
What if your backtest overstated the edge?
A tested win rate is a sample, not a promise. This is your system with the win rate degraded and everything else left alone.
| Actual win rate | Expectancy | Risk of ruin | Median max drawdown |
|---|---|---|---|
| 40.0% (as entered) | +0.40R | 8.9% | 50.8% |
| 36.0% (10% worse) | +0.26R | 24.0% | 59.9% |
| 32.0% (20% worse) | +0.12R | 51.2% | 71.8% |
| 28.0% (30% worse) | -0.02R | 81.3% | 85.3% |
Three ways to answer the same question
The textbook formula, the standard simulation, and the simulation that accounts for your portfolio. The gap between the first and the last is what costs traders their accounts.
| Method | What it assumes | Risk of ruin |
|---|---|---|
| Textbook formula | Fixed bet size, one trade at a time, outcomes independent | under 0.1% |
| Standard simulation | Sized off current equity, one trade at a time, outcomes independent | under 0.01% |
| Your portfolio | 10 positions at once, correlation 0.50 | 8.7% |
How To Use It
You need four numbers about your system and two about your portfolio. If you have a backtest, every one of them is already in the results summary. If you do not have a backtest, use the profile buttons at the top to start from a typical system and adjust from there.
Win rate. The percentage of your trades that make money. Take it from your tested results, not from memory.
Payoff ratio. Your average winning trade divided by your average losing trade. A trend following system might win 40% of the time at a payoff of 2.5. A mean reversion system might win 65% of the time at a payoff of 0.8. Both can be profitable, and they fail in completely different ways.
Risk per trade. What you lose if one position goes straight to its stop, as a percentage of your account. If you buy $10,000 of a stock with a stop 10% below your entry, you are risking $1,000. On a $100,000 account that is 1%.
Number of trades. How far ahead you want to look. Risk of ruin is not a fixed property of a system, it grows with exposure. Five hundred trades is a few years for most swing traders.
Positions at the same time, and their correlation. This is the part that matters most, and the part almost every other calculator leaves out. Read the section below before you set it.
Why This Calculator Gives A Different Answer
Search for a risk of ruin calculator and you will find plenty of them. Nearly all give the same comforting answer, because nearly all make the same three assumptions.
They assume your trades happen one at a time. They do not. You hold a portfolio. When ten signals fire on the same day, you take ten positions, and all ten are live together.
They assume your trades are unrelated. They are not. A portfolio of long stock positions is a portfolio of bets on the same thing. In a market-wide selloff, the correlation between your open positions goes to something like 0.8, and they fall as one.
They assume the edge you typed in is the edge you have. It is not, or at least not exactly. A backtested win rate is a sample. The live one is usually worse.
Set the calculator to one position with zero correlation and you will see the number every other tool reports. Then set it to the portfolio you actually hold. On the default trend following system risking 2% per trade, the answer moves from effectively zero to roughly one account in eleven. Same system. Same position size. The only thing that changed is an assumption that was never true.
That gap is not a rounding error. It is the difference between a calculator that reassures you and one that tells you something useful.
How The Simulation Works
Every number the calculator shows comes from simulating thousands of complete trading careers, not from plugging your inputs into a formula.
Each simulated account trades your system for the number of trades you specify, sized as a percentage of its current equity. That last detail matters. When you size off current equity, wins compound and losses shrink your next position, so an account can grind down for a long time without ever mathematically reaching zero. That is why ruin is defined as a threshold you choose rather than as a zero balance.
Positions are opened in groups, and within each group the outcomes are linked by a one-factor model. A single common factor stands in for the market. When it is against you, every open position is more likely to lose at once. Turn the correlation to zero and the positions become independent again, which is the textbook case.
The calculator then reports two things that are often confused:
- Risk of ruin is the chance of falling to your chosen threshold measured from your starting capital.
- Maximum drawdown is the worst fall from any peak along the way.
Maximum drawdown is always the larger number, and it is the one you actually live through. An account can double, halve, and finish ahead, never coming close to ruin, while putting its owner through a 50% drawdown that ends their trading career anyway. The calculator shows the median and the worst 5% of drawdowns for exactly this reason.
The Risk Of Ruin Formula, And Where It Breaks
The classic risk of ruin formula is:
Risk of ruin = ((1 – E) / (1 + E)) ^ U
Where E is your edge as a decimal and U is the number of units of capital you can lose before you stop. It is clean, it is genuinely useful for intuition, and it assumes wins and losses are the same size, bets are a fixed dollar amount, and trades are independent.
None of those three hold for a systematic stock trader. The calculator shows the textbook answer next to the two simulated answers in the comparison table so you can see the size of the gap for your own inputs. Usually the formula is the most optimistic number on the page.
For the full treatment of the concept, the maths, and what the numbers look like across the position sizes traders actually use, read risk of ruin in trading.
What The Results Are Telling You To Do
If your expectancy is negative, stop reading the ruin number. It is not the problem. A system that loses money on average loses money at every position size. Sizing down slows the bleeding and changes nothing else. Find an edge first, then size it.
If your risk of ruin is above a few percent, you are trading too large. The fix is almost never a better entry signal. It is a smaller position size, more positions, or genuinely uncorrelated systems.
If your risk of ruin is low but the drawdown numbers are ugly, believe the drawdown numbers. Most traders never reach mathematical ruin. They quit in a 45% drawdown and call the system broken. The bad-luck drawdown figure is the one to check against your own tolerance, honestly, before you need to.
Run the degradation table before you trust any of it. It shows what happens when your live win rate comes in below your tested one. If a 10% relative slip in win rate turns a comfortable number into an alarming one, your position size has no margin for error, and backtests are never that accurate.
The single most useful lesson here is that the order of operations matters. Find a real edge. Size it second. Traders almost always do this backwards, tuning position size until the backtest looks survivable, when the real problem is that the edge was never there. If you are not sure whether yours is real, measure it with the trading expectancy calculator and read what a trading edge actually is.
How To Reduce Your Risk Of Ruin
In order of how much they help:
- Trade a real edge. Nothing else on this list matters without it.
- Cut your risk per trade. The relationship is violently non-linear. Halving your position size does far more than halve your risk of ruin.
- Reduce the correlation between your positions. Not the number of positions, the correlation between them. Twenty positions that all fall together is one position with extra commission.
- Trade more than one system. Systems with different logic, different holding periods, and different market conditions are the only reliable source of genuine diversification.
- Widen your definition of ruin honestly. If you know you would stop at a 30% loss, model 30%, not 50%. Modelling a threshold you would never actually reach gives you a number you cannot use.
Frequently Asked Questions
What is a risk of ruin calculator?
A risk of ruin calculator estimates the probability that your trading account falls to a level you cannot recover from, based on your system’s win rate, payoff ratio, risk per trade, and how long you trade. This one also accounts for the number of positions you hold at once and how correlated they are, which is what separates a realistic answer from an optimistic one.
What is a good risk of ruin?
For a system with a genuine tested edge, most traders should be looking for risk of ruin under 1% over their planned trading horizon. The more useful target is the drawdown, because you will stop trading from drawdown pain long before mathematical ruin arrives.
Is risking 2% per trade too much?
For most traders, yes. The 2% rule exists to stop people risking 10%, not because 2% is a considered answer. Enter your own system above and check what 2% does to your drawdown numbers once your positions are correlated. Below 1% is safer territory.
Why does this calculator give a higher number than others?
Because it does not assume your trades happen one at a time and independently of each other. Real portfolios hold several correlated positions at once, which makes a bad stretch hit everything together. Set positions to 1 and correlation to 0 and this calculator will agree with the others.
Can position sizing fix a losing trading system?
No. Position sizing controls how fast you lose money with a negative edge, not whether you lose it. The edge has to come first.
Is risk of ruin the same as maximum drawdown?
No. Risk of ruin measures a fall from your starting capital. Maximum drawdown measures the worst fall from any equity peak. Maximum drawdown is always larger, and it is what you actually experience.
How accurate is a risk of ruin calculator?
It is exactly as accurate as the inputs you give it, and the inputs come from a backtest, which is a sample rather than a promise. Treat every result as a floor rather than a forecast, and use the degradation table to see how much your answer moves when the edge is slightly worse than tested.
What number of trades should I use?
Use the number you expect to take over the period you care about. Risk of ruin is not fixed, it grows with exposure, so a system that looks safe over 200 trades may not look safe over 2,000.
Where To Go From Here
Risk of ruin is arithmetic. You can run the numbers for your own system in the next five minutes, and if the answer is uncomfortable, the fix is usually smaller size, genuine diversification, and a harder look at whether your edge survived testing.
Doing that properly across a portfolio of systems is what the Trader Success System is built for. It walks you through finding an edge you can verify, sizing it so the drawdowns stay inside what you can actually tolerate, and combining uncorrelated systems so no single bad stretch takes you out.
If you are earlier in the journey, start with the FREE Trader Acceleration Bundle and take the Trading Mistakes Cheat Sheet, which covers the sizing errors this calculator is designed to expose.
Remember – You are only one trading system away!
Related Calculators
- Trading Expectancy Calculator – measure whether your edge is real before you size it
- Position Size Calculator – turn a risk percentage into a number of shares
- Drawdown Calculator – work out the recovery required from a given fall
- Risk Reward Calculator – check the payoff ratio on a single trade
- All EST trading calculators
