Risk of Ruin Calculator
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Use our precise risk of ruin calculator to help you calculate accurately the odds of reaching maximal drawdown based on risk per trade and win percentage of a trading system.
What is the Risk of Ruin in Forex
The risk of ruin in forex is the likelihood of a trader losing substantial amounts of capital through investing and trading, to a point where it can’t be possible to recover from the previous losses, or continue trading.
The Risk of Ruin (RoR) is a mathematical model used by traders to simulate the real risk of losing all of a trading account’s balance, based on the win/loss ratio and how much capital percentage is at risk on each trade.
For example, an investor has a trading system performing with a 25%-win rate, and with an average profit of 5, and risking 2% per trade. To find out the risk of ruin of this system, these variables can be plugged into the Risk of Ruin Calculator. Then, the results can be helpful to develop an understanding of the overall strength of the trading system, and above all, how to control the risk of ruin and/or drawdown.
With this Risk of Ruin calculator investors can simulate the probability of blowing their trading account over time, based on the win rate percentage and the average risk percentage per trade.
How to Use the Risk of Ruin Calculator
This Risk of Ruin calculator is useful to accurately simulate the odds of erasing completely the trading account balance based on the risk per trade and win percentage of a trading system. Let's see how to use our calculator, field by field.
Win rate %: This field represents the win rate percentage of the trading system. Traders should consider that a sound trading system must return a win rate between 50% and 70%. For our example, we will consider a current trading strategy that yields a 60%-win rate.
Average profit/loss: For this field traders should enter the average profit earned per winning trade, divided by the average amount lost per losing trade. For our example, we will select 2.
Risk per trade %: In several articles we mention that professional traders do not risk more than 2% of the account equity per trade. This sound Money Management system allows traders to last longer on their trading careers and recover from inevitable losing trades. Thus, for our example, we will apply 2% as the risk per trade.
Number of trades: This field simulates the number of trades, or signals, from the trading system. If traders want to test a trading strategy and find out how it will perform based on a number of future trades, then it can be simulated with the expected number of trades. It can be anything from 30 weekly trades, 15 monthly trades and so on.
If traders want to find out the risk of ruin percentage of a current trading strategy, then the calculator can be helpful to test the robustness of the subsystem. Just input the total number of trades taken so far. For our example, we will use 60 as the number of trades for our current trading strategy.
Max drawdown %: If testing a new strategy, traders should input the expected maximal drawdown percentage. On the other, to find out the risk of ruin of a current trading system, traders must input the maximal drawdown percentage reached with their current trading strategy. For our example, we will use 10% as the maximal drawdown percentage reached.
Now, to find out how the risk of ruin of our trading strategy, we hit the red "Calculate" button.
The results: The Risk of Ruin calculator will display the results of the “Risk of peak-to-valley drawdown” percentage and the “Risk of ruin” percentage.
The peak-to-valley drawdown definition is the account’s biggest cumulative percentage decline in equity value. It is calculated as the percentage decline from the trading account’s highest value, or peak, to the lowest value, or valley, after the peak.
On our example, it can be interpreted that our trading system has a 16.7% probability of reaching a 10% drawdown from an equity high to a subsequent equity low.
The second result calculated is the risk of ruin percentage of a trading strategy. On our example, 1%. This means that our trading system has a 1% probability of reaching 10% drawdown on the starting equity balance.
Please note that the Risk of Ruin calculator output can vary because it is based on a simulation of 100,000 iterations.
We also suggest a combination with our Forex Drawdown Calculator. This calculator can help traders to accurately simulate how a trading account’s balance can be affected after a series of losing trades.
Add this Risk of Ruin Calculator to Your Website
Our set of calculators use live market rates, allowing traders to get the most accurate calculations possible. These calculators work with the most popular cryptocurrencies such as Bitcoin, Doge, Ripple, Ethereum and many more, most forex pairs (Major and Minor crosses), world indices and metals.
Not only it is possible to calculate with precision what is the risk of ruin percentage for a trading system applied to BTC/USD trades, based on the win % per trade, or for a 1 lot EUR/USD trade, for example, but also, these great calculators are localised in 23 different languages, including Chinese, Russian, Arabic, and Japanese.
With a user-friendly interface and an intuitive design, these tools can be easily customized and embedded with any web page. The great advantage of our tools is that they are completely unbranded, without any 3rd party logos. Plus, these tools can be fully customized to match the colour scheme and the layout of any web page.
If you consider that this complete suite of calculators might create added value for your web pages, or to simply complement a "Tools/Calculators" section of your portal, you are free to embed them on your website.
All the widgets can be used and embedded as they are, or they can be fully customized to suit your website’s colours. After configuring the settings, simply copy/paste the final code to embed the tool/calculator widget on your web page.
Our Risk of Ruin Calculator is powered by CBFX trading tools.