Risk of ruin calculator
Two strategies with the same expected return can have completely different odds of blowing up — it all comes down to bet size. This simulator runs 5,000 Monte-Carlo equity paths to estimate how often your settings hit a ruinous drawdown.
By Mustafa Bilgic · Published 2026-06-27 · Last updated 2026-06-27
Risk of Ruin Simulator
Monte Carlo: how often a strategy hits a ruinous drawdown
What "risk of ruin" really measures
Risk of ruin is the probability that a string of losses drives your account below a level you define as catastrophic — here, a chosen drawdown from your starting balance such as 50% — at some point within a finite number of trades. It is the single most useful number for deciding how much to risk per trade, because two strategies with identical expected return can have wildly different odds of blowing up depending purely on bet size.
There are closed-form risk-of-ruin formulas for simple even-money games, but real trading has an asymmetric payoff and fixed-fractional compounding — each bet is a percentage of current equity, so it shrinks after losses. That makes a clean formula awkward, so this tool uses a Monte Carlo simulation instead: it runs 5,000 independent equity paths of your chosen length, each trade winning with your stated probability and paying your stated payoff ratio, risking a fixed fraction of the running balance. It then counts how many paths ever touched your ruin threshold.
How to read the result
The output is the share of those 5,000 simulated histories that hit ruin. A few patterns are worth internalising:
- Bet size dominates. Hold win rate and payoff fixed and slide risk-per-trade from 1% to 5% — risk of ruin explodes, because larger bets mean a losing streak does proportionally more damage before the fixed fraction can de-risk you.
- A positive edge is not safety. A genuinely profitable system can still show a meaningful chance of a deep drawdown over hundreds of trades if it is over-sized. Edge decides the destination; sizing decides whether you survive the road.
- Horizon matters. The more trades you simulate, the more chances a bad streak has to appear, so longer horizons generally raise the probability of touching any given drawdown.
The simulation assumes every trade is independent and that your win rate and payoff stay constant forever — real markets cluster losses and shift regimes, which makes true risk of ruin higher than any idealised model. Treat the number as a relative dial for comparing sizing choices, not a guarantee. The risk-management guide covers the daily-loss limits and kill switches that cap ruin in live trading, and the Kelly calculator shows the growth-optimal ceiling on bet size.
Frequently asked questions
How is risk of ruin calculated here?
This tool runs a Monte Carlo simulation: 5,000 independent equity paths of the length you choose, each trade winning with your stated probability and paying your payoff ratio, risking a fixed fraction of the current balance. It reports the percentage of paths that ever fell to your ruin drawdown threshold.
What is a safe risk of ruin?
There is no universal number, but many practitioners aim to keep the probability of a deep (for example 50%) drawdown low — in the low single digits or less — over a realistic horizon. The honest takeaway is comparative: smaller risk-per-trade always lowers risk of ruin for a given edge.
Why does my profitable strategy still show risk of ruin?
Because expectancy and survival are different things. A positive edge makes the average path grow, but if you bet too large a fraction per trade, an ordinary losing streak can still carve a deep drawdown before compounding recovers. Reduce risk-per-trade and watch the number fall.
Does this guarantee my real results?
No. The model assumes independent trades and a constant win rate and payoff. Real markets cluster losses and change regime, so actual risk of ruin is usually higher. Use this as a sizing dial, alongside live risk controls, not as a forecast.