Risk of Ruin Calculator
Simulate thousands of possible trading paths to estimate account survival, drawdown risk, losing streaks and possible ending balances. This tool helps traders understand how position sizing and trading performance interact over time.
Monte Carlo Trading Simulation
Enter realistic statistics from your trading journal. Results are simulations, not predictions of future market performance.
Simulation Summary
Simulated Equity Curve
The chart shows a representative simulated trading path. Real trading results will vary and will not necessarily follow this curve.
Ending Balance Distribution
This distribution shows how often simulated accounts ended within different balance ranges.
Drawdown Probability Analysis
The table below estimates how frequently the simulated trading paths experienced different levels of account drawdown.
| Drawdown Level | Probability |
|---|---|
| 10%+ | — |
| 20%+ | — |
| 30%+ | — |
| 40%+ | — |
| 50%+ | — |
| 60%+ | — |
What Is Risk of Ruin in Trading?
Risk of ruin is a way of thinking about the probability that a trading account experiences a predefined level of loss. Instead of focusing only on how much money a strategy can make, risk-of-ruin analysis asks an important question: How likely is the account to survive?
This is particularly important because a strategy can have a positive historical expectancy and still experience losing streaks and substantial drawdowns.
Why Position Size Matters
Position sizing determines how much of your account is exposed to each trading outcome. When the percentage risk per trade is increased, losing streaks can reduce account equity much faster.
For example, risking 1% per trade gives an account considerably more room to withstand a series of losses than risking 10% per trade.
Understanding R-Multiples
This calculator uses R-multiples to standardize trading outcomes. One R represents the amount you planned to risk on a trade.
+2R = profit equal to two times planned risk
-1R = loss equal to the planned risk
Expected Value
Expected value estimates the average outcome of a trade based on the assumed win probability and average win and loss sizes.
A positive expectancy is useful, but it does not guarantee that an individual trader will make money over a particular sequence of trades.
What Is Monte Carlo Simulation?
Monte Carlo simulation creates many randomized trading paths using the assumptions entered into the calculator. Each path represents one possible sequence of wins and losses.
Thousands of paths can reveal a range of possible outcomes, including losing streaks, drawdowns and ending balances that may be difficult to understand from a single backtest.
How to Interpret the Results
If the simulated probability of ruin is high, consider whether the assumed risk per trade is too aggressive or whether the strategy's historical performance is sufficiently robust.
If the simulated risk is low, this does not mean that trading is safe or that losses are impossible. It simply means that, under the assumptions entered, the simulated account reached the defined ruin threshold less frequently.
Risk of Ruin Is Not the Same as Probability of Loss
A trader can lose money on individual trades without reaching the calculator's ruin threshold. For example, a 50% ruin threshold means that the simulation records a ruin event when the account falls approximately 50% from its starting equity.
Drawdown Recovery Mathematics
Large drawdowns require disproportionately larger gains to recover.
20% drawdown → 25% recovery required
30% drawdown → 42.9% recovery required
50% drawdown → 100% recovery required
Use Your Trading Journal
The quality of a simulation depends heavily on the quality of its assumptions. Instead of choosing a win rate or average profit based on an optimistic target, use data from a meaningful sample of actual trades whenever possible.
Your trading journal can help you estimate win rate, average winner, average loser and the longest losing streak you have actually experienced.
Risk of Ruin Calculator FAQ
What does risk of ruin mean?
Risk of ruin is the estimated probability that an account reaches a predefined loss threshold during a series of trades.
What is Monte Carlo simulation?
Monte Carlo simulation runs many randomized trading scenarios using the assumptions entered by the user. The results show a range of possible outcomes rather than one predicted result.
What does 1R mean?
1R represents the amount planned to be risked on a trade. A +2R winner makes twice the planned risk, while a -1R loss loses the planned risk.
Does a low risk of ruin guarantee profit?
No. A low simulated risk of ruin does not guarantee profitable trading. Market conditions, execution, trading costs and changes in strategy can cause actual results to differ.
What risk per trade should I use?
There is no single percentage that is appropriate for every trader. Use a risk level that is consistent with your account, strategy, objectives and tolerance for drawdown.
How many simulations should I run?
More simulations generally produce a smoother estimate. However, increasing the number of simulations does not make the underlying assumptions more accurate.
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Important Disclaimer
The EZTradingHub Risk of Ruin Calculator is provided for educational and informational purposes only. The results are statistical simulations based on the assumptions entered by the user and should not be interpreted as predictions or guarantees of future trading performance.
Financial markets involve substantial risk, including the possible loss of capital. Actual results may differ significantly because of market conditions, execution, liquidity, slippage, commissions, spreads, strategy changes and trader behaviour.
EZTradingHub does not provide personalized financial or investment advice. Consider your own circumstances and seek qualified professional advice where appropriate.