What is Risk of Ruin?
Risk of ruin is the chance that a trading strategy will suffer a drawdown so severe that recovery becomes very difficult. In this calculator, ruin means the account falls 70% from the starting balance at any point in the simulation.
That is different from a normal losing trade. A strategy can survive a few losses and still be healthy. Risk of ruin is about whether the strategy can survive a bad streak, not just whether it can win a single trade.
How the Monte Carlo Model Works
Monte Carlo simulation means the calculator runs many possible trade paths instead of using just one outcome. Each simulated path uses your win rate, risk per trade, reward ratio, and trade count. Because trading outcomes are uncertain, the simulation helps show a range of possible futures rather than pretending there is one exact answer.
For every simulated trade, the model randomly decides whether the trade is a win or a loss based on your win rate. If it is a win, the account grows by the risk amount multiplied by your reward-to-risk ratio. If it is a loss, the account loses the risk amount. The calculator then counts how often the account hits the ruin threshold across thousands of simulations.
Loss trade: balance -= balance × risk
Risk of ruin = ruined simulations ÷ total simulations × 100
Why Risk of Ruin Matters
Even a strategy with a decent win rate can fail if risk per trade is too high. Losing streaks happen. The real question is whether your system can survive them.
- A high win rate does not guarantee survival
- Risk per trade has a huge effect on long-term outcomes
- Small mistakes compound over time
- Survival matters more than short-term excitement
How to Use This Calculator
- Enter your win rate
- Enter your risk per trade
- Enter your reward-to-risk ratio
- Enter the number of trades you want to test
- Click calculate
Frequently Asked Questions
This version uses a fixed random seed, so the same inputs always produce the same output. That makes comparisons stable and easier to read.
A 0% result usually means your strategy is conservative enough that none of the simulated paths reached the ruin threshold.
Lower is better. Many traders try to keep it below 5 to 10 percent, but the right level depends on the strategy and the trader’s tolerance.
No. Risk per trade often matters more. A high win rate strategy can still fail if losses are too large.
You can reduce risk by lowering position size, improving reward ratio, and avoiding overtrading.
No. Monte Carlo simulation does not predict the future exactly. It shows how a strategy could behave across many possible outcomes based on your assumptions.