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DaPex LabsAnswer Capsule: Risk of Ruin = probability of losing your entire account. Formula: ((1-Edge)/(1+Edge))^(Capital/AvgLoss). Keep it under 2%. Above 5% is dangerous. Above 10% is gambling.
Risk of Ruin = probability of losing your entire account. Formula: ((1-Edge)/(1+Edge))^(Capital/AvgLoss). Keep it under 2%. Above 5% is dangerous. Above 10% is gambling.
What's the probability you blow your account? This is the question every serious trader needs to answer. Enter your stats below.
Risk of Ruin (RoR) is the probability that you will lose your entire account balance given your current win rate, average win size, and average loss size.
The formula used is the classic Kaufman / Balsara model:
RoR = ((1 - Edge) / (1 + Edge)) ^ (Account / Avg Loss)
where Edge = WinRate — (1 — WinRate) / (AvgWin / AvgLoss)
Rule of thumb: Keep RoR under 2%. If it is above 5%, reduce your position size or improve your edge. Above 10% is gambling territory.
The mathematical formula for risk of ruin considers win rate, average win/loss ratio, and risk per trade. It answers: what is the probability you will blow your entire account?
Example: 40% win rate, 2:1 reward-to-risk, risking 2% per trade:
Risk of Ruin ≈ 14% — meaning 14% chance of losing everything over a large number of trades.
Actionable insight: Lowering risk per trade from 2% to 1% drops ruin probability dramatically. At 1% risk with the same stats, ruin probability falls below 1%. This is why the 1% rule is non-negotiable for serious traders.
The mathematical formula for risk of ruin considers win rate, average win/loss ratio, and risk per trade. It answers: what is the probability you will blow your entire account?
Example: 40% win rate, 2:1 reward-to-risk, risking 2% per trade:
Risk of Ruin ≈ 14% — meaning 14% chance of losing everything over a large number of trades.
Actionable insight: Lowering risk per trade from 2% to 1% drops ruin probability dramatically. At 1% risk with the same stats, ruin probability falls below 1%. This is why the 1% rule is non-negotiable for serious traders.
The mathematical formula for risk of ruin considers win rate, average win/loss ratio, and risk per trade. It answers: what is the probability you will blow your entire account?
Example: 40% win rate, 2:1 reward-to-risk, risking 2% per trade:
Risk of Ruin ≈ 14% — meaning 14% chance of losing everything over a large number of trades.
Actionable insight: Lowering risk per trade from 2% to 1% drops ruin probability dramatically. At 1% risk with the same stats, ruin probability falls below 1%. This is why the 1% rule is non-negotiable for serious traders.
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Access DaPex Terminal | Live Chart 16 Free CalculatorsReferences: Risk of Ruin (Wikipedia) · Kelly Criterion (Wikipedia)
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