Risk of Ruin Calculator

How the calculation works

This educational model estimates how likely repeated even-money bets at a fixed risk size are to exhaust a bankroll, given a win probability W. It first counts how many risk units fit in the bankroll (N = bankroll ÷ risk per trade). It then applies the classic approximation RoR ≈ ((1 − W) / W)^N. Higher W or larger N (smaller risk per trade) drives ruin probability down quickly; the reverse raises it.

Formula & example

RoR ≈ ((1 − W) / W)^N where N = bankroll ÷ risk per trade (even-money approximation)

55% win rate, $10,000 bankroll, $200 risk → N = 50 units. RoR ≈ ((0.45)/(0.55))^50 ≈ very small.

Why use this calculator

Even a real edge can be ruined by oversized bets. Risk-of-ruin framing shows that survival is mostly about unit size relative to capital, not about finding a slightly higher win rate.

When to use it

Use it as a stress check when choosing risk-per-trade, not as a precise forecast. It is most informative for comparing “too large” versus “conservative” risk fractions under an assumed edge.

Background

“Risk of ruin” comes from gambler’s-ruin problems in classical probability. In the 20th century it was adapted to bankroll management for speculative trading and professional gambling; Edward Thorp and others discussed related capital-preservation ideas in the context of blackjack and markets. This page uses a simple even-money teaching formula — not a full path-dependent simulation.

Tips for accurate results

• This is an even-money educational model — real payoffs differ.
• Lower risk per trade usually dominates flashy win-rate tweaks.

FAQ