Risk of Ruin in Trading: How to Calculate It, and the One Number That Moves It Most

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Last updated: 16 October 2026 · By Spencer Li, CFTe

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Risk of ruin is the probability that a run of losses takes your account down so far that you can no longer trade. It depends on 3 things: your win rate, your payoff, meaning how big the winners are compared with the losers, and how much you risk on each trade. Of the 3, risk per trade moves it the most, and it is the only one fully in your control.

For the simplest case, where every win and every loss is the same size, there is a clean formula. Risk of ruin = [(1 − A) ÷ (1 + A)]^C, where A is your edge, the win rate minus the loss rate, and C is the number of losing trades your account can absorb. For real trading, with bigger winners than losers and a position sized as a percentage of the account, the honest method is to simulate it.

I’ll walk through both below, with round hypothetical numbers.

What counts as “ruin” for a trader?

Strictly, ruin means the money is gone. But if you risk a fixed percentage of the account on every trade, the account shrinks with each loss and in theory never quite reaches zero. So traders usually define ruin as a drawdown deep enough to end the game in practice.

Half the account is a sensible line. A 50% loss needs a 100% gain to recover, and by that point most people have stopped following their rules anyway. Pick your own line, but pick it before you calculate, because the answer depends on it.

How do you calculate risk of ruin?

Start with the classic formula, which assumes wins and losses of equal size, like a coin flip with a slight tilt.

Say you win 55% of the time and lose 45%. Your edge A is 0.55 minus 0.45, which is 0.10. The formula then becomes 0.9 ÷ 1.1, about 0.82, raised to the power of C.

C is how many losing trades the account can take before it is gone. If you risk 10% of your starting account per trade, C is 10. At 5% it is 20, and at 2% it is 50.

Same 55% win rate, same edge. At 10% per trade, the odds of losing everything are roughly 1 in 7. At 2% per trade, they are roughly 1 in 25,000. I checked the formula against 5,000 simulated runs and it held, giving 13.6% and 1.9% for the first 2 rows.

What about real trading, where winners are bigger than losers?

Most swing trading looks nothing like a coin flip. You lose more often than you win, and the winners are larger. The formula above does not handle that, so I simulated it.

Take a hypothetical strategy that wins 40% of the time, with winners of 2R and losers of 1R, where R is the amount risked per trade. That is a genuine edge, worth 0.2R per trade on average. Now run it 20,000 times at different sizes and count how often the account falls to half its starting value within 200 trades:

Read that table slowly, because the strategy never changed. At 2% per trade it almost never breaks. At 10% per trade, the same winning strategy halves the account nearly half the time, and at 20% it does so in most runs. The edge was real the whole way down the table. Only the size changed.

So here are the 3 levers of ruin, in order of how much control you have:

1. Risk per trade. Fully yours, every trade.
2. Payoff. Partly yours, through where you place stops and targets.
3. Win rate. Mostly the market’s, and the hardest to improve.

[INFOGRAPHIC: the 3 levers of ruin as 3 dials, with the size dial drawn largest, next to the 200-trade table as a bar chart]

If you want a daily routine with the sizing rule built in, the free 15-Minute Swing Trader’s Checklist is at the end of this post.

Can you get your risk of ruin to zero?

Close, but never exactly. A trader on r/Daytrading posted an old account in October 2026 under the title “35 consecutive losses. Max drawdown 1.21%. This is what zero ruin risk actually looks like.” Over 2,718 trades, his worst run was 35 losses in a row, and in his words, “35 losses in a row and the account barely moved.”

The numbers check out. A 1.21% drawdown across 35 straight losses means he was risking something like 0.035% of the account per trade. At 2% per trade, the same 35-loss streak would have cut the account roughly in half.

His central point is the right one: “The right starting point is the loss.” Plan the worst streak first, then size for it. Where I would push back gently is on “zero”. A risk that small makes ruin vanishingly unlikely, and it also makes every win tiny. There is a trade-off, and the art is choosing a size where the worst realistic streak hurts without ending anything.

Do note 2 limits of any risk of ruin number. First, the maths assumes each trade is independent. In real markets losses can cluster, when several positions are really the same bet or the market regime changes, so the true risk is higher than the table says. Second, the inputs are estimates. A win rate measured over 30 trades can be far from the real one, which is the subject of how many trades you need before judging a strategy. Build in a margin for both.

What risk of ruin should you accept?

As close to zero as you can get while still making the trading worthwhile. The ruin line is a level you never come back from, so it deserves a very wide berth. In practice that means a small, fixed risk per trade, the same on every trade, which is what the 2% money management rule for position sizing sets out. Many traders sit well below 2%.

Personally, I think risk of ruin is the number that turns the casino idea from a slogan into arithmetic. The house keeps its bets small relative to its bankroll so that no run of bad luck can close it, which is the whole point of trading like a casino rather than a gambler. There is also a formula that tells you the most you could ever sensibly bet with a known edge, and why you should stay well under it: the Kelly criterion for position sizing. For the bigger picture, read why risk management is important in trading and the practical guide to money and risk management.

The trader with 35 losses in a row did not have a better strategy than everyone else. He had planned for the 35th loss before the first one happened, and his account was still there to see trade 2,718.

FAQ

What is risk of ruin in trading?

It is the probability of losing so much that you can no longer trade. Traders usually define ruin as a set drawdown, such as half the account, because fixed-percentage sizing never quite reaches zero.

What is the risk of ruin formula?

For equal-sized wins and losses, you divide 1 minus A by 1 plus A, then raise the result to the power of C. A is the win rate minus the loss rate, and C is the number of losing trades the account can absorb.

How does risk per trade affect risk of ruin?

It is the biggest lever. In the simulated example above, the same winning strategy went from almost never halving the account at 2% per trade to halving it about 43% of the time at 10%.

Can a winning strategy still go broke?

Yes. A positive edge only protects you if the size of each trade lets you survive the losing streaks that come before the edge shows.

What is a good risk of ruin?

As close to zero as you can manage while the trading is still worth doing. Because ruin is permanent, a small fixed risk per trade is the usual answer.

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About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe). His trade log is public: every trade since April 2024, dated, losses left in.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

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