Money management
Risk of ruin explained (and how to compute it)
7 min read · by the GetBacktest team
Risk of ruin is the probability your account hits zero (or a critical threshold) before your edge pays off. It's the most underrated statistic in trading: two strategies with the same expectancy can have radically different risks of ruin. Surviving comes before performing.
What risk of ruin depends on
Three levers drive it: your win rate, your average win / average loss ratio, and above all the percentage of capital risked per trade. The last is the most powerful — and the most mismanaged.
A counter-intuitive truth: even a positive-expectancy strategy can ruin an account if risk per trade is too high. Losing streaks happen, and an oversized position won't survive a normal one.
Why losing streaks trap you
With a 50% win rate, a run of 7 losses in a row is nothing exceptional over a few hundred trades — it's near-certain. If you risk 10% per trade, seven losses wipe out more than half the account.
Drawdown doesn't recover linearly: after −50%, you need +100% to break even. Hence the rule: cap risk per trade (often 0.5 to 2% of capital) to keep risk of ruin negligible.
How to compute it
Formally, risk of ruin derives from win rate, payoff and risk per trade; for realistic rules, the best approach is Monte-Carlo simulation: replay thousands of trade sequences drawn from your statistics and count the share that hits the ruin threshold.
Our free risk-of-ruin calculator (/en/outils/risque-de-ruine) does this instantly — test the effect of cutting risk per trade from 5% to 1%, the gap is dramatic.
Reducing it concretely
Lower risk per trade, improve the win/loss ratio (let winners run, cut losers), and avoid over-exposure (correlated positions moving together). Set a max daily and weekly drawdown, and stop when it's hit.
Finally, prove all this before risking money: a large backtest gives you the real win rate and payoff to feed the calculation, rather than optimistic figures.
Don't believe it — prove it
Backtest this concept on real data, tick by tick, and get a robustness verdict. 7 days of Pro free, no card.
Start for freeFrequently asked questions
What risk of ruin should I target?
As low as possible — ideally under 1%. Beyond a few percent, a single normal losing streak can knock you out.
How much to risk per trade?
Most professionals risk 0.5 to 2% of capital per trade. It's the most effective lever to crush risk of ruin.
How do I estimate my real win rate?
By backtesting your strategy over a large sample. Use those real statistics (not estimates) in the risk-of-ruin calculation.
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