# Risk of Ruin Calculator > 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. Canonical HTML page: https://qanterion.com/tools/risk-of-ruin-calculator Updated: 2026-08-18 ## 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. ``` ## Worked example (the page defaults) - Win rate: 45 % - Payoff ratio (avg win : avg loss): 2 :1 - Risk per trade: 1 % - Drawdown that counts as ruin: 40 % Result: - Risk of ruin: 0% - Normalised edge: 24.14% - Risk units available: 40 - Expectancy per unit risked: 0.35 - Break-even win rate: 33.33% ## How to use it 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. ## Frequently asked ### 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. ## Related tools and reading - Kelly Criterion Calculator: https://qanterion.com/tools/kelly-criterion-calculator - Position Size Calculator: https://qanterion.com/tools/position-size-calculator - How to read a backtest: https://qanterion.com/blog/read-backtest-risk - Risk of ruin: https://qanterion.com/glossary/risk-of-ruin - Quant Trading Glossary: https://qanterion.com/glossary - Crypto backtesting platform: https://qanterion.com/backtesting ## Sources - [Grinstead and Snell's Introduction to Probability](https://math.dartmouth.edu/~prob/prob/prob.pdf) — American Mathematical Society (Dartmouth CHANCE Project edition) - [A New Interpretation of Information Rate](https://www.princeton.edu/~wbialek/rome/refs/kelly_56.pdf) — Bell System Technical Journal, AT&T (hosted by Princeton University) - [ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors](https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors) — European Securities and Markets Authority (ESMA) ## Other languages - 简体中文: https://qanterion.com/zh/tools/risk-of-ruin-calculator - 繁體中文（台灣）: https://qanterion.com/zh-TW/tools/risk-of-ruin-calculator - 繁體中文（香港）: https://qanterion.com/zh-HK/tools/risk-of-ruin-calculator - 日本語: https://qanterion.com/ja/tools/risk-of-ruin-calculator - 한국어: https://qanterion.com/ko/tools/risk-of-ruin-calculator - Português (Brasil): https://qanterion.com/pt-BR/tools/risk-of-ruin-calculator - Türkçe: https://qanterion.com/tr/tools/risk-of-ruin-calculator - Bahasa Indonesia: https://qanterion.com/id/tools/risk-of-ruin-calculator - العربية: https://qanterion.com/ar/tools/risk-of-ruin-calculator ## Machine-readable resources - Product facts: https://qanterion.com/llms.txt - Full knowledge base: https://qanterion.com/llms-full.txt - All calculators: https://qanterion.com/tools ## Risk notice 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.