What risk of ruin is
Risk of ruin is the probability that within a given number of trades the drawdown reaches a level at which you have to stop: a prop firm limit, the amount you are willing to lose, or zero. It depends on three numbers: the share of winning trades (win rate), the ratio of the average win to the average loss and the risk per trade.
The calculator estimates it with a Monte Carlo model: 5,000 random sequences of trades with your win rate and win/loss ratio, risk taken as a share of current capital. It is a model, not a forecast: it assumes the strategy's statistics do not change and trades are independent.
Risk per trade matters more than it seems
The same strategy — 45% win rate, average win 1.5 times the average loss, expectancy +0.125 R per trade — and a threshold of a 30% drawdown from the peak within 500 trades.
| Risk per trade | Risk of ruin | Median max drawdown |
|---|---|---|
| 0.5% | 0% | 8.1% |
| 1% | 2% | 15.8% |
| 2% | 48.9% | 29.8% |
| 3% | 92.4% | 42% |
| 5% | 100% | 61.7% |
A profitable strategy risking 2% per trade goes through a 30% drawdown in roughly half the cases. At 1% — in 2% of cases. The higher the risk, the deeper the typical drawdown and the more likely it hits the threshold before the strategy has time to earn.
Prop account: static drawdown
Prop firms often measure the limit from the starting balance. The same strategy, a 10% limit from the start, 200 trades: at 0.5% risk the account fails in 2.2% of cases, at 1% — in 17%, at 2% — in 41.2%. In the calculator choose «from the starting balance». More in «Prop firm risk management». The chance to pass a phase — to reach the target before the limit — is calculated by the prop challenge simulator.
Negative expectancy
Expectancy = win rate × (win / loss) − (1 − win rate) in units of risk R. If it is below zero, no risk per trade will save you: with a 40% win rate and a 1.2 ratio the expectancy is −0.12 R, and even at 1% risk the 30% threshold within 500 trades is reached in 96% of cases. What helps here is a different strategy, not a smaller size.
Where to get your numbers
Take the win rate and win/loss ratio from at least 50–100 of your own trades. In Davinchu the trading journal calculates them automatically, and its «Risk & robustness» tab builds a similar model from your trading days. The MT5 risk manager helps you hold the risk per trade and the daily limit.