Risk management
Risk of Ruin: How Bet Size Decides If You Survive
By MarketsBench · Published · 3 min read
Risk of ruin is the probability that a strategy hits a drawdown you treat as game over before its edge has time to play out. It is the number that connects two things traders usually think about separately: how good the strategy is, and how much it bets per trade.
The uncomfortable result is that the second one often matters more.
What "ruin" means here
Ruin does not have to mean a zero balance. For most traders it is a drawdown deep enough to stop trading the plan: 20% for a personal account, 10% on many funded accounts, 50% if you are unusually stubborn. Pick the level first, because every number below depends on it.
The calculator uses a two-outcome model: each trade either wins a fixed multiple of the risk or loses the risk. Real trades vary more than that, so treat the output as an estimate of the shape of the danger, not a precise forecast.
Same edge, different bet size
Take a strategy that wins 55% of the time with wins and losses the same size. That is a real edge, worth +0.1R per trade on average. Ruin is a 20% drawdown.
| Risk per trade | Losses in a row to ruin | Risk of ruin |
|---|---|---|
| 0.5% | 44.5 | 0.013% |
| 1% | 22.2 | 1.16% |
| 2% | 11.0 | 10.9% |
| 3% | 7.3 | 22.99% |
| 5% | 4.4 | 41.77% |
Nothing about the strategy changed between the rows. At 1% the chance of hitting the 20% line is about one in eighty-six. At 5% it is close to a coin flip, because four or five net losses is all it takes.
A thin edge needs small bets
Hold the bet at 1% and change the win rate instead:
| Win rate (1:1 payoff) | Edge per trade | Risk of ruin (20% line) |
|---|---|---|
| 50% | 0 | 100% |
| 52% | +0.04R | 16.91% |
| 55% | +0.1R | 1.16% |
| 60% | +0.2R | 0.012% |
With no edge, ruin is certain given enough trades; the model is simply waiting for a long enough losing run. A small edge (52%) still carries a one-in-six chance of a 20% drawdown at 1% risk. If you are not sure how big your edge is, and most traders are not, the safe assumption is that it is smaller than your backtest says, and the bet size should reflect that.
Where you draw the line matters too
The same 55% strategy at 2% risk, with different ruin levels:
| Ruin drawdown | Risk of ruin at 2% risk |
|---|---|
| 10% | 35.12% |
| 20% | 10.9% |
| 30% | 2.89% |
This is why funded-account rules feel so tight. A 10% maximum drawdown with 2% risk per trade leaves room for about five net losses, and a strategy with a modest edge hits that more than a third of the time. The fix is not a better strategy; it is a smaller bet.
How to use the number
- Set the ruin line before the risk. Decide what drawdown ends the plan, then size so the risk of reaching it is small, a few percent at most.
- Be conservative with the inputs. Use a win rate and payoff a little worse than your records show. The output is very sensitive to the edge, and overestimating it is the common error.
- Compare with Kelly, then go lower. The Kelly criterion gives the bet that maximises growth for a known edge. Most traders use a fraction of it, because full Kelly carries deep drawdowns even when the edge is exactly right.
- Recheck after a losing run. If the win rate has drifted down, the risk of ruin at your current size has gone up, often sharply.