What risk of ruin is acceptable?

Most systematic desks target well under 1% against a drawdown threshold they would actually act on. The precise number matters less than the sensitivity test: change risk per trade and watch how fast the probability moves. If a small increase produces a large jump, the sizing is on the wrong side of the cliff.

Why is my risk of ruin 100%?

Because expectancy is zero or negative — the win rate and payoff ratio together do not produce a positive edge. When that is true, ruin is certain given enough trades regardless of position sizing. Compare your win rate against the break-even figure to see how far short the strategy falls.

Does this account for correlated positions?

No. It models a sequence of independent single-position outcomes. Running several strategies at once, or several positions in correlated instruments, effectively raises risk per trade above what you entered — sometimes far above, since correlations rise in exactly the conditions that produce clustered losses.

The probability nobody publishes

Risk of Ruin Calculator

The chance a strategy hits your drawdown limit before its edge has time to show up.

Updated 2026-08-18

Risk of ruin is the probability that a series of trades drives an account down to a defined failure threshold before the strategy’s edge compounds. It depends on four things: win rate, payoff ratio, risk per trade, and how much drawdown counts as ruin. A 45% win rate with 2:1 payoff risking 1% per trade has a near-zero chance of a 40% drawdown; raise risk to 5% per trade and the same edge produces a meaningful probability of ruin — the edge did not change, only the sizing did.

Strategy and sizing

Win rate (%)

Payoff ratio (avg win : avg loss) (:1)

Risk per trade (%)

Percentage of equity risked on each individual position

Drawdown that counts as ruin (%)

The loss at which you would actually stop — often well below 100%

Runs entirely in your browser. No inputs are transmitted or stored.

Ruin probability

Risk of ruin: —
Normalised edge: —
Risk units available: —
Expectancy per unit risked: —
Break-even win rate: —

Set the ruin threshold to the drawdown at which you would genuinely stop trading, not to 100%. Most accounts are abandoned long before they are emptied, and a strategy abandoned at −40% has failed just as completely as one liquidated at −100%.

The formula

A   = (p·R − q) ÷ (p·R + q)      normalised edge; = p − q when R = 1
U   = Ruin threshold % ÷ Risk per trade %
RoR = ((1 − A) ÷ (1 + A))^U      when A > 0, otherwise 100 %

  p = win rate    q = 1 − p    R = payoff ratio

Approximation: assumes constant fractional risk and independent trades.

1 Enter the win rate and payoff ratio from your backtest or live record.
2 Enter the percentage of equity you risk on each individual trade.
3 Set the drawdown that would genuinely make you stop — not a theoretical 100%.
4 Halve the risk per trade and observe how far the probability falls; that sensitivity is the real output.

Ruin is a sizing problem, not an edge problem

The same strategy statistics produce wildly different survival odds depending only on risk per trade. Halving the risk doubles the number of consecutive losses the account can absorb, and because ruin probability falls exponentially in that count, small sizing changes move the answer by orders of magnitude. This is why position sizing is the highest-leverage decision in systematic trading: it does not improve the edge, it decides whether you are still there when the edge arrives.

What the model assumes, and where it breaks

The formula assumes constant fractional risk, independent trades, and a stable win rate and payoff. Real strategies violate all three: losses cluster in regime changes, correlation across positions concentrates risk that looks diversified, and edges decay. Treat the output as a lower bound on danger rather than a forecast — the real probability is generally worse than the model says, never better.

Sources

Grinstead and Snell's Introduction to Probability — American Mathematical Society (Dartmouth CHANCE Project edition)
A New Interpretation of Information Rate — Bell System Technical Journal, AT&T (hosted by Princeton University)
ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors — European Securities and Markets Authority (ESMA)

Educational calculator. Outputs describe arithmetic under the assumptions you enter — they are not a forecast, a recommendation, or investment advice. Quantitative trading can lose money.

Frequently asked

Short answers, with the assumptions stated.

What risk of ruin is acceptable?: Most systematic desks target well under 1% against a drawdown threshold they would actually act on. The precise number matters less than the sensitivity test: change risk per trade and watch how fast the probability moves. If a small increase produces a large jump, the sizing is on the wrong side of the cliff.
Why is my risk of ruin 100%?: Because expectancy is zero or negative — the win rate and payoff ratio together do not produce a positive edge. When that is true, ruin is certain given enough trades regardless of position sizing. Compare your win rate against the break-even figure to see how far short the strategy falls.
Does this account for correlated positions?: No. It models a sequence of independent single-position outcomes. Running several strategies at once, or several positions in correlated instruments, effectively raises risk per trade above what you entered — sometimes far above, since correlations rise in exactly the conditions that produce clustered losses.

Take the number into a terminal that enforces it

Position caps, drawdown stops, and liquidation distance are limits QANTERION applies while a strategy runs — not figures you re-check by hand.

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