Risk of ruin is the probability that a run of losses takes your account below a level you cannot come back from — a blown account, a failed prop challenge, or simply the drawdown at which you would quit. It is not a property of your strategy alone. It comes from three numbers: your edge, the fraction you risk per trade, and where you draw the line called "ruin."
The uncomfortable part is how often the answer is decided by the second number. A strategy with a genuine edge — the 1.31 profit factor from our profit factor guide — has almost no chance of losing half the account at 1% risk per trade, and a 43% chance at 10%. Same trades, same win rate. Only the size changed.
This guide works through the arithmetic with reproducible numbers: how many losses in a row each risk level survives, how likely those streaks are, and what it all adds up to.
The formulasFour lines that set the limits
start × (1 − risk per trade)ᴺ1 ÷ (1 − drawdown) − 1exp(−2 × expectancy × ruin distance ÷ variance), all in Rwin rate − loss rate ÷ payoff ratioThe third line is the classic long-run approximation. Expectancy is your average result per trade in R, variance is the spread of those results, and the ruin distance is how many R you can lose before you are out. It makes the key point without a simulation: risk of ruin falls exponentially as the distance to ruin grows. Halve your risk per trade and you double the distance — which does far more than halve the danger.
The streak tableHow many losses in a row each risk level survives
Most traders risk a fixed percentage of the current balance, so each loss is slightly smaller than the last. Here is how many consecutive full losses it takes to reach each drawdown:
10%
- To −10%
- 1
- To −20%
- 3
- To −50%
- 7
- 10 losses in a row
- −65.1%
5%
- To −10%
- 3
- To −20%
- 5
- To −50%
- 14
- 10 losses in a row
- −40.1%
3%
- To −10%
- 4
- To −20%
- 8
- To −50%
- 23
- 10 losses in a row
- −26.3%
2%
- To −10%
- 6
- To −20%
- 12
- To −50%
- 35
- 10 losses in a row
- −18.3%
1%
- To −10%
- 11
- To −20%
- 23
- To −50%
- 69
- 10 losses in a row
- −9.6%
0.5%
- To −10%
- 22
- To −20%
- 45
- To −50%
- 139
- 10 losses in a row
- −4.9%
| Risk per trade | To −10% | To −20% | To −50% | 10 losses in a row |
|---|---|---|---|---|
| 10% | 1 | 3 | 7 | −65.1% |
| 5% | 3 | 5 | 14 | −40.1% |
| 3% | 4 | 8 | 23 | −26.3% |
| 2% | 6 | 12 | 35 | −18.3% |
| 1% | 11 | 23 | 69 | −9.6% |
| 0.5% | 22 | 45 | 139 | −4.9% |
Source: CalculatorAI · calculatorai.app · drafts/risk-of-ruin-numbers.mjs
And the way back is always steeper than the way down. A 20% drawdown needs +25% to recover, 30% needs +42.9%, 50% needs +100% and 75% needs +300%. Past a certain depth, "ruin" is not a zero balance — it is a hole the strategy's edge cannot climb out of in any reasonable time.
The oddsLong losing streaks are normal, not bad luck
The table above only matters if streaks like that actually happen. They do, far more often than intuition suggests. For independent trades, the exact probability of seeing at least one losing streak of a given length:
60% · 200 trades
- 5+ losses
- 71.4%
- 8+ losses
- 7.4%
- 10+ losses
- 1.2%
- 12+ losses
- 0.2%
45% · 100 trades
- 5+ losses
- 92.0%
- 8+ losses
- 30.7%
- 10+ losses
- 10.1%
- 12+ losses
- 3.1%
45% · 200 trades
- 5+ losses
- 99.4%
- 8+ losses
- 53.0%
- 10+ losses
- 19.9%
- 12+ losses
- 6.4%
45% · 500 trades
- 5+ losses
- 100%
- 8+ losses
- 85.4%
- 10+ losses
- 43.3%
- 12+ losses
- 15.6%
35% · 200 trades
- 5+ losses
- 100%
- 8+ losses
- 91.0%
- 10+ losses
- 61.6%
- 12+ losses
- 32.3%
| Win rate · trades | 5+ losses | 8+ losses | 10+ losses | 12+ losses |
|---|---|---|---|---|
| 60% · 200 trades | 71.4% | 7.4% | 1.2% | 0.2% |
| 45% · 100 trades | 92.0% | 30.7% | 10.1% | 3.1% |
| 45% · 200 trades | 99.4% | 53.0% | 19.9% | 6.4% |
| 45% · 500 trades | 100% | 85.4% | 43.3% | 15.6% |
| 35% · 200 trades | 100% | 91.0% | 61.6% | 32.3% |
Source: CalculatorAI · calculatorai.app · Exact calculation · drafts/risk-of-ruin-numbers.mjs
Put the two tables together. A trader with a 45% win rate who takes 500 trades has a 43% chance of ten losses in a row at some point. At 2% risk, that streak alone is an 18% drawdown; at 5%, it is 40%. The strategy did nothing wrong — the sizing turned a normal streak into a crisis. Our guide to what trading drawdown is normal shows how to tell such a streak from a strategy that has actually stopped working.
The simulationRisk of ruin by risk per trade
Now the full picture, with wins and losses of varying size rather than clean 1R steps. The strategy: 45% winners averaging 1.6R, losers averaging 1R — a profit factor of 1.31 and +0.17R expected per trade. A real, positive edge. We ran it for 500 trades, 20,000 times at each risk level:
0.5%
- Falls to −20%
- 0.0%
- Falls to −50%
- 0.0%
1%
- Falls to −20%
- 1.1%
- Falls to −50%
- 0.0%
2%
- Falls to −20%
- 10.9%
- Falls to −50%
- 0.1%
3%
- Falls to −20%
- 24.6%
- Falls to −50%
- 1.5%
5%
- Falls to −20%
- 45.5%
- Falls to −50%
- 10.5%
10%
- Falls to −20%
- 73.9%
- Falls to −50%
- 43.2%
| Risk per trade | Falls to −20% | Falls to −50% |
|---|---|---|
| 0.5% | 0.0% | 0.0% |
| 1% | 1.1% | 0.0% |
| 2% | 10.9% | 0.1% |
| 3% | 24.6% | 1.5% |
| 5% | 45.5% | 10.5% |
| 10% | 73.9% | 43.2% |
Source: CalculatorAI · calculatorai.app · Seeded simulation · drafts/risk-of-ruin-numbers.mjs
Between 1% and 2% the chance of a 20% drawdown goes from about one in ninety to about one in nine. At 5%, nearly half of all traders running this profitable strategy see the account down a fifth, and one in ten sees it halved. This is the practical case for the 0.5–2% range that our position sizing guide recommends: not caution for its own sake, but where the curve is still flat.
The edgeSizing cannot rescue a strategy without one
The other lever is the edge itself. Hold risk at 2% per trade and change only the win rate, with winners still averaging 1.6R:
At break-even (profit factor 1.00) the chance is already 60.8%. Without an edge, ruin is a question of when.
Show these figures as a table
| Value (% chance of a 30% drawdown) | |
|---|---|
| 35% wins · PF 0.86 — 95.7% | 95.7 |
| 38.5% wins · PF 1.00 — 60.8% | 60.8 |
| 40% wins · PF 1.07 — 38.9% | 38.9 |
| 45% wins · PF 1.31 — 3.0% | 3 |
| 50% wins · PF 1.60 — 0.2% | 0.2 |
Source: CalculatorAI · calculatorai.app · Seeded simulation · drafts/risk-of-ruin-numbers.mjs
Two lessons sit in this chart. A thin edge — a profit factor of 1.07 — still carries a 39% chance of a 30% drawdown, because the drift upward is too weak to outrun the noise. And the costs that erode profit factor (commission, slippage) move you down this chart: they are a risk-of-ruin problem, not just a profitability one. The Risk/Reward Calculator shows the win rate a target and stop need to break even before you size anything.
Prop firmsWhere ruin has a hard line
A funded-account challenge is risk of ruin with the line drawn for you. Most firms fail the account at a fixed maximum loss — often 10% of the starting balance — and many size risk as a fixed dollar amount, so losses do not shrink as the balance falls. With the same PF 1.31 strategy over 200 trades and a static 10% limit:
1.3% chance of failing
The limit is 20 full losses away. Streaks that long are rare, and every winner pushes the balance further from the line.
31.8% chance of failing
The limit is 5 full losses away. At a 45% win rate, a run of five is almost certain within 200 trades — a third of traders fail with a profitable strategy.
At 1% of the start the chance is 11.1%: ten straight losses end the challenge exactly, and trailing drawdown rules make it tighter still — see static vs trailing drawdown. Our guide on passing a prop firm challenge without risking more per trade works through the same trade-off between speed and survival.
KellyThe mathematically "optimal" size is too big
The Kelly fraction is the bet size that grows an account fastest in the long run. For our strategy it is 0.45 − 0.55 ÷ 1.6 = 10.6% per trade. It is also a size almost nobody can live with:
Full Kelly halves the account for nearly half of traders
At full Kelly, 47.3% of simulated runs lost half the starting balance at some point within 500 trades — close to the theoretical 50% for an unlimited horizon. Half Kelly cuts that to 12.2% and quarter Kelly to 0.7%, while giving up much less growth than the drop in risk suggests. And Kelly assumes you know your true win rate and payoff, which, as the sample-size table in our profit factor guide shows, you rarely do.
Treat Kelly as a ceiling, not a target. If a quarter of your Kelly fraction is below the risk you are taking now, you are sizing on the steep part of the curve.
Your journalMeasure the inputs, not a feeling
Every number above depends on inputs you can only get from your own trades. The checklist:
Log planned risk on every trade
Entry, stop and size at entry, so each result can be read in R and your real risk per trade is visible — not the one you think you use.
Track the longest losing streak
Compare it with the streak table for your win rate. Then multiply it by your risk per trade: that is the drawdown your next normal streak will cost.
Watch maximum drawdown per account
A funded account and a personal one have different ruin lines. Read each one against its own limit.
Check expectancy by setup
A setup with a profit factor near 1 is on the steep part of the edge chart. It raises the risk of ruin for the whole account.
Size from your Kelly, not up to it
Use a quarter to a half of the Kelly fraction as an upper bound, and only after 100+ trades of the setup.
The Trading Journal shows your longest losing streak, maximum drawdown, expectancy, average R and Kelly % on the dashboard, and filters them by account and strategy — so a prop account and a personal account can be read against their own ruin lines. The Risk/Reward Calculator turns account size, risk percent, entry and stop into a position size before the trade.
Frequently asked questions
What is risk of ruin in trading?
It is the probability that your account falls to a level at which you can no longer trade the strategy — zero, a prop firm's maximum loss, or a drawdown you define as unacceptable. It depends on your win rate and payoff, your risk per trade and how far that ruin line is from your balance.
How do you calculate risk of ruin?
For even-money bets there is an exact formula; for real trading, a simulation of your own win rate and win and loss sizes is the practical method. With a fixed dollar risk, a good approximation is exp(−2 × expectancy × ruin distance ÷ variance), with everything measured in R.
What is an acceptable risk of ruin?
A common target is a risk of ruin close to zero for a 50% drawdown and low single digits for a 20% one. For the strategy in this guide, that means 1–2% risk per trade.
How many losing trades in a row is normal?
It depends on the win rate and the number of trades. At a 45% win rate over 200 trades, at least one run of 8 losses has a 53% chance and a run of 10 has a 20% chance. At a 60% win rate, a run of 8 has about a 7% chance.
Does risking a percentage of the current balance prevent ruin?
It prevents reaching zero, because each loss gets smaller, but it does not prevent deep drawdowns. At 5% risk, 14 straight losses still halve the account, and recovering from a 50% drawdown needs a 100% gain.
Sources and methodology
All figures are synthetic and reproduced in drafts/risk-of-ruin-numbers.mjs. The streak table is exact arithmetic on a percentage of the current balance; the streak probabilities are computed exactly for independent trades. The ruin simulations draw 20,000 histories per cell from a strategy with 45% winners spread evenly between 1.2R and 2.0R and losers between 0.85R and 1.15R (profit factor 1.31, +0.17R per trade) — the same strategy as our profit factor guide. The prop-firm scenario uses a fixed dollar risk and fails the account at −10% of the starting balance, with no daily loss limit and no profit target. The exponential approximation was checked against a 5,000-trade simulation (36.5% vs 32.4% at a 5R ruin distance, 13.3% vs 11.6% at 10R).
Real trades cluster, costs vary and win rates drift, so real-world risk of ruin is, if anything, higher than shown. Educational information only, not investment advice.
