Risk of Ruin: The Math Behind Account Blow-Ups
Risk of ruin calculates the probability of losing your entire account. Learn the formula and how to get it below 1%. The formula that tells you if your.
What Is Risk of Ruin?
Risk of ruin is the probability that your account reaches zero. The formula: RoR = ((1-Edge)/(1+Edge))^Units, where Edge = win_rate × avg_win - loss_rate × avg_loss, and Units = account size / risk per trade.
The Formula in Practice
Example: Win rate 55%, average win $200, average loss $100. Edge = 0.55×200 - 0.45×100 = 110 - 45 = 65. Risk of ruin with $10,000 account risking $100 per trade: Units = 100. RoR = ((1-0.65)/(1+0.65))^100 = (0.35/1.65)^100 ≈ effectively zero. But with a smaller edge or larger risk, RoR climbs fast.
Getting Risk of Ruin Below 1%
- Risk 1% per trade, not 5-10% — each doubling of risk roughly squares your RoR
- Have a real edge: If your edge is zero, RoR = 100% regardless of position size
- Use stop losses — without them, a single trade can end your account
- Trade smaller after losses — reduce risk after drawdowns to protect capital
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.