Risk of Ruin Calculator
A profitable system can still blow up if you size too big. This runs 8,000 Monte Carlo equity paths on your edge and counts how many hit a ruin drawdown before the edge pays off.
Why a winning system still blows up
Risk of ruin is the probability a losing streak drags your account down to a level you call "ruined" before your edge has time to compound. A positive expectancy says you win on average over infinite trades - it says nothing about surviving the next fifty.
We simulate fixed-fractional sizing: each trade risks a percentage of your currentbalance, so losses shrink your bets and wins grow them - the honest way most traders actually size. Ruin is defined as a drawdown from your starting balance, because almost nobody keeps trading a strategy after it's halved their account, whatever the math says.
The lesson is in the position-size table: the edge is identical in every row, but doubling your risk per trade can turn a 3% chance of ruin into a 40% one. Edge decides if you make money; position size decides whether you're still around to collect it.
Common questions
What is risk of ruin?
The probability that a run of losses drops your account below a level you have defined as ruin, before your edge has had time to pay off. It combines win rate, payoff ratio and position size into a single number, and a profitable strategy can still carry a high risk of ruin if it is sized aggressively.
What risk per trade keeps risk of ruin near zero?
For most positive-expectancy systems the number falls off sharply below about 2% per trade and becomes very small around 1%. The exact figure depends on your win rate and payoff, which is what this calculator is for — a low win rate with a large payoff behaves very differently from the reverse.
Can a profitable strategy still ruin an account?
Yes, and this is the point of the calculation. Positive expectancy describes the long-run average; ruin is about the path taken to get there. Size large enough and a perfectly good edge will be interrupted by a losing streak you cannot survive.
What does the calculation assume?
A fixed win rate and payoff, and independent trades. Real strategies have neither — edges decay and losses cluster in the same market conditions. Treat the output as an optimistic floor rather than a precise probability.
Where we use this
- → Position Size Calculator - set the risk % this model consumes
- → Monte Carlo Simulator - the same question with your real trades
- → Risk of Ruin (free MQL5 Code Base script) - run the same calculation on your actual MT5 trade history
- → Sixteen Strategies Failed Our Gates. The Four Best Losers, Combined, Passed Everything.
We run this kind of survival test on every strategy before we publish it.
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