What Is Risk of Ruin? Formula and Sizing Table
Risk of ruin is the probability that an account loses a defined share of its capital before its edge has time to pay out. It is a survival probability rather than a forecast of returns, computed from win rate, payoff ratio and risk per trade. A system with a genuine positive edge can still have a high risk of ruin, and the variable that decides is almost always position size.
How it works
The classic closed form assumes a fixed fractional bet with a 1:1 payoff and defines ruin as reaching zero.
RoR = (q / p) ^ N
p = probability of winning a trade
q = 1 − p
N = capital ÷ risk per trade (units of risk available)
The exponent is what matters: halving risk per trade doubles N, and doubling an exponent squares the probability. Take a system winning 52% of trades at 1:1, where the only thing changing down the table is lot size.
| Risk per trade | Units of risk | Risk of ruin |
|---|---|---|
| 1% | 100 | 0.03% |
| 2% | 50 | 1.8% |
| 4% | 25 | 13.5% |
| 5% | 20 | 20.2% |
| 10% | 10 | 44.9% |
Going from 1% to 2% multiplies the probability of ruin by more than fifty. Going from 1% to 10% turns a rounding error into a coin flip. The edge never changed.
Real systems do not pay 1:1 and their trades are not independent, so the closed form is a teaching device rather than an answer. Practical estimates simulate thousands of trade sequences and count the paths that reach the loss level. That is how the risk of ruin calculator works; it also reports risk of drawdown, the probability of reaching a given decline without going to zero, which is the number most traders actually need.
Why it matters
Risk of ruin is the bridge between expectancy and survival: expectancy says what the average trade is worth, risk of ruin says whether you will still be trading when the average arrives.
It is also why two traders running the same signals reach opposite outcomes. Identical entries and exits, different lot sizes: same win rate, same profit factor, one account compounding and one closed. Nothing in the strategy explains the difference.
The practical use is inversion — fix the probability you are willing to accept and solve backwards for the position size that delivers it.
What the data shows
Across the public accounts on ShowMyTrades with trading history (August 2026), 17.6% have recorded a deepest drawdown of more than 50%, and 38.2% have passed 20%. These describe accounts published here, not traders in general.
That 17.6% is the empirical counterpart to the table above: losing more than half an account is roughly one in six, not a rare tail. The median deepest drawdown is 9.7%, so the population splits between accounts that stayed recoverable and a large minority at a level needing a 100% gain to undo.
The inputs point the same way. Median profit factor is 1.28 and median win rate is 68.8%, which together imply an average payoff ratio near 0.6: losses larger than wins, an account carried by frequency. That shape has a modest expectancy and a fat left tail, and both feed the exponent in the formula.
Where you see it on ShowMyTrades
There is no live ruin probability on an account page, but every input to one is published.
- Win Rate, Profit Factor, Avg. Win and Avg. Loss in the Advanced Statistics module. Avg. Win divided by Avg. Loss is the payoff ratio the formula needs; Win Rate is
p. - Expectancy, in pips and in currency, is the edge a simulation samples from, and Z-Score (Probability) beside it says whether wins and losses arrived in streaks — the clustering the independence assumption ignores.
- Total Trades and Avg. Trade Length, in the same module: the median published account holds 171 closed trades at a median length of 2.4 hours — enough for a win rate, thin for a tail estimate.
- Drawdown and DD on Balance, the two rows between Avg Monthly % and Balance in the Account Stats panel: the realised outcome the probability was describing.
- The Drawdown view in the charts viewer, where every approach toward a loss level appears as bars over time rather than as one headline number.
Common misunderstandings
- "A positive expectancy means I cannot go broke." Only if you bet infinitesimally small amounts an infinite number of times. At 10% per trade, a positive edge and a 45% chance of ruin coexist comfortably.
- "A high win rate protects me." Win rate is one of two inputs. At 68.8% wins with a payoff ratio near 0.6, the arithmetic sits far closer to break-even than the headline suggests.
- "Ruin means a zero balance." It means whatever level ends the account: a prop firm's daily drawdown limit, an investor's redemption, or the point where you stop trusting the system.
- "Risk of ruin is a fixed property of my strategy." It is a property of the strategy and the sizing. The first is slow to change; the second changes before the next order.
For why a high hit rate says less about survival than it appears to, read win rate is not an edge.
Related terms
Daily Drawdown Limit
A daily drawdown limit caps how much an account may lose in one trading day, measured from a daily reference. Balance versus equity, reset times, and real data.
Expectancy
Expectancy is the average profit or loss of one trade: (win rate × avg win) − (loss rate × avg loss). The formula, a worked example, and public accounts.
Maximum Drawdown
Maximum drawdown is the deepest peak-to-trough fall an account ever recorded. The formula, the recovery table, and the real spread across thousands of accounts.
Position Sizing
Position sizing turns a risk percentage into a lot size using your stop distance and pip value. The formula, the three common methods, and what bad sizing costs.