Risk of ruin calculator
A strategy with an edge can still lose half the account before the edge shows. Set the win rate, the payoff and the loss per trade to see how likely that is.
- Chance of ever losing 50%
- under 0.1%
- Edge per trade, in average losses
- +0.21
- Losses in a row that get there
- 25
How it is calculated
edge = win rate × payoff − (1 − win rate), held between −0.99 and 0.99; units = ruin level ÷ loss per trade; risk of ruin = ((1 − edge) ÷ (1 + edge)) ^ units, and 100% when the edge is zero or less.
What the number means
The edge is what one trade earns on average, counted in average losses. A 55% win rate that pays 1.2 times the loss earns 0.21 of a loss per trade. The capital is then counted in losses too: 2% per trade means 25 losses to lose half.
The formula is the classic gambler’s ruin for an even-sized bet. It assumes every trade is independent and the loss is always the same size. Real trading breaks both assumptions, usually for the worse, so read the result as a floor.
How Monetio uses it
The report computes this same analytic number from your file, with the average loss and the expectancy the trades actually show and the starting balance as the capital. Next to it sits a simulated risk of ruin that reshuffles and resamples the real trades, which keeps the streaks and the uneven loss sizes the formula leaves out.
The simulated number is the one to trust when the two disagree. A strategy whose trades cluster their losses can show a tiny analytic risk and a large simulated one.