What risk of ruin is
Risk of ruin is the probability that a run of losing trades takes your account below a point you can’t (or won’t) recover from. It depends on three things: how often you win, how big your wins are relative to your losses, and how much of your account each trade risks.
The last one is the only lever you fully control. With a 45% win rate and 1.5R winners over 250 trades, risking 0.5% per trade gives a typical worst drawdown of about 6%. At 2% it is about 24% (and 1 run in 20 sees 40%+); at 5%, roughly 1 in 6 runs loses half the account. Same strategy, same edge — only the size changed.
Why a Monte Carlo simulation
Closed-form risk-of-ruin formulas assume fixed bet sizes and infinite time. Simulating thousands of random trade sequences shows the range of realistic outcomes — the median, the unlucky 5%, and the typical worst drawdown along the way.
Use your real numbers
Plug in the win rate and average R from your own journal, not the numbers you hope for. If your expectancy is negative, no position size fixes it. See the expectancy calculator and the guide to risk of ruin.
FAQ
What is an acceptable risk of ruin?
Most risk managers aim for well under 1%. If the simulation shows double digits, reduce the risk per trade.
Does a high win rate protect me?
Not by itself. A high win rate with small wins and large losses can still have negative expectancy and high ruin risk.
Why risk a percentage instead of a fixed dollar amount?
Risking a fixed percentage shrinks your bets during a drawdown, which slows losses and lowers the chance of ruin.