Most traders obsess over entries. The ones who survive obsess over position sizing. This calculator exposes the brutal math behind your strategy using two tools that hedge funds have relied on for decades: the Kelly Criterion (theoretical optimal bet size) and Monte Carlo simulation (1,000 random equity curves based on your actual win rate and risk:reward).
Input your strategy, hit simulate, and see the raw probability that you blow your account. If the number scares you, good — it should. Most retail traders risking 5% per trade have a higher ruin probability than they realize, even with a positive edge.
Risk of Ruin Calculator
Quick Presets
Strategy Inputs
Probability of Ruin
Core Metrics
Monte Carlo Equity Curves (10 sample paths)
Outcome Distribution (1000 runs)
Same Strategy at Different Risk Levels
| Risk/Trade | Ruin Probability | Median Outcome | Expected Capital | Verdict |
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How the Math Works
This calculator runs 1,000 independent simulations using your exact inputs. Each simulation plays out your chosen number of trades — a coin flip weighted by your win rate, with wins paying out your risk:reward ratio and losses costing your risk per trade. Order matters: the same strategy can make money in one sequence and blow up in another because of how losing streaks cluster.
Kelly Criterion Formula
The Kelly Criterion answers a single question: "What fraction of my capital should I bet to maximize long-term growth?" The formula for bet sizing with edge:
f* = W - (1 - W) / R
Where W is your win rate (as a decimal) and R is the payoff ratio (reward ÷ risk). A trader with 60% win rate and 1:2 R:R gets f* = 0.60 - 0.40/2 = 0.40, meaning Kelly says risk 40% per trade. That's insane for real trading because Kelly assumes infinite trades and no execution errors. Serious practitioners use half-Kelly (20% in this example) or quarter-Kelly (10%) to reduce variance at the cost of slightly lower expected growth.
Risk of Ruin Formula
The classical risk of ruin formula for fixed fractional betting:
RoR = ((1 - Edge) / (1 + Edge)) ^ U
Where Edge is your advantage per bet and U is the number of "units" of capital between starting balance and ruin. The more units you have (smaller risk per trade), the closer ruin probability drops to zero. Double your risk per trade and ruin probability squares — this is why going from 2% to 4% risk per trade is far more dangerous than it looks.
Why Monte Carlo Beats Theory
The closed-form ruin formula assumes constant edge and infinite trades. Real trading has path dependency: a 30% drawdown in the first 10 trades is a disaster; the same 30% drawdown in trades 90-100 after you're up 80% is a speed bump. Monte Carlo captures this by simulating 1,000 different trade orderings. Sometimes your big wins come early and cushion the drawdowns; sometimes losing streaks hit your unprotected starting capital. The distribution of outcomes tells the real story.
Risk Management Rules Every Trader Should Follow
- Never risk more than half-Kelly. Full Kelly maximizes growth but produces 50%+ drawdowns routinely. Professional traders who can stomach that are rare.
- 1-2% per trade is the industry standard for a reason. It keeps ruin probability below 5% for any strategy with a real edge, even across 500+ trades.
- Worst case matters more than expected value. You can't trade your way out of a 70% drawdown psychologically, even if math says it's recoverable.
- Variance is brutal. A 60% win rate strategy will see 5 losses in a row roughly every 100 trades. Can your sizing survive that?
- Test with Monte Carlo before going live. Backtests show one path. Monte Carlo shows the distribution of paths. The difference is what blows accounts.
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Open Free AccountFrequently Asked Questions
The Kelly Criterion is a formula that determines the optimal fraction of capital to risk on each trade given your win rate and risk:reward ratio. Formula: f* = W - (1-W)/R, where W is win rate (decimal) and R is payoff ratio. Most professional traders use half-Kelly or quarter-Kelly to reduce volatility while keeping most of the expected growth.
Risk of ruin is the probability that your trading account will fall below a survival threshold (commonly 50% drawdown) given your edge, position size, and number of trades. A trader with a positive edge can still blow up if they over-size positions. The formula combines win rate, payoff ratio, and bet fraction relative to total capital.
Monte Carlo runs thousands of random trade sequences using your win rate and risk:reward ratio as probabilities. Each simulation produces a different equity curve because trade order is random. Looking at 1000 runs shows the full distribution of outcomes: best case, worst case, median, and the actual percentage of runs that blew up. This is more realistic than a single theoretical calculation.
For most retail traders with a real edge, 0.5% to 2% risk per trade keeps risk of ruin below 5% over 100+ trades. Risking 5% or more dramatically increases ruin probability even with a good strategy. The higher your win rate and R:R, the more you can safely risk — but Kelly Criterion provides the theoretical maximum, and you should typically use half of that.
Variance. A strategy with 60% win rate and 1:2 R:R has a positive expectancy, but random losing streaks happen. Even a 90% strategy will see 4-5 consecutive losses in a long enough sample. If your position size cannot survive that losing streak, you blow up regardless of your long-term edge. Monte Carlo simulation exposes this hidden risk that simple expectancy calculations miss.