Risk of Ruin Calculator
Risk of ruin calculator
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Use our Risk of Ruin Calculator to accurately calculate the probability of reaching the maximal drawdown based on the risk per trade and win rate percentage of a trading system.
What is a Risk of Ruin Calculator
The Risk of Ruin (RoR) is a mathematical model which tells traders the chances of losing all of their account balance based upon the win/loss % and how much % of the capital is put at risk per trade.
For example, if a trader has a system that performs well with a 30%-win rate, with an average profit of 2, and risking 2% per trade, this data can be inputted into the Risk of Ruin Calculator and be run to develop an understanding of the overall robustness of the trading system and how to control the risk of ruin and/or drawdown.
With this calculator traders can know the chances of blowing their trading account over time. This is based on the win rate percentage and the average risk percentage per trade. By entering the data of a trading system performance statistics, and with the RoR calculator above, traders can easily calculate their own risk of ruin.
How to Use the Risk of Ruin Calculator
Win rate %: In this field traders should input the overall win rate percentage of the trading system. For example, let's consider a current trading strategy that yields a 30% win rate.
Average profit/loss: In 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 use 2 as the average profit of our current strategy.
Risk per trade %: Countless times we mention that as a rule of thumb, professional traders do not risk more than 2% of the account equity per trade. This sacred methodology allows traders to last longer on their trading careers and to recoup from previously losing trades. So, we will use 2% as the risk per trade.
Number of trades: Very straight forward. If traders are testing a trading strategy and want to know how it will perform based on a number of future trades, then it's only required to input the expected number of trades. It can be 30 daily trades, 15 weekly trades and so on.
If traders are testing a current trading strategy and want to know how it's performing and it's risk of ruin percentage, then just input the total number of trades taken so far. For this example, we will input 50 as the total number of trades for our current trading strategy.
Max drawdown %: In this field traders must input the maximal drawdown percentage reached (with a current trading strategy), or the expected maximal percentage if testing a new strategy. For our example, we will input a 30% maximal drawdown reached with our current trading strategy.
Next, we hit the "Calculate" button.
The results: The first result is the Risk of peak-to-valley drawdown percentage, in our case 21.1%. Peak-to-valley drawdown definition is a trader's account largest cumulative percentage decline in portfolio value. It is defined as the percentage decline from the trading account highest value (peak) to the lowest value (valley) after the peak. It can also be interpreted that this trading strategy is showing a 21.1% probability of reaching 30% drawdown from an equity high to a subsequent equity low.
The second result of the calculator is the risk of ruin percentage of our trading strategy, in this case 13.7%, meaning that this trading strategy is showing a 13.7% probability of reaching 30% drawdown on the starting equity amount.
The output of the Risk of Ruin Calculator can vary because it is based on a simulation of 100,000 iterations.
You might also find our Forex Drawdown Calculator useful. It can help traders to understand and to accurately calculate how a trading account equity can be affected after a series of losing trades.
Use this Risk of Ruin Calculator on Your Website
Our tools and calculators are developed and built to help the trading community to better understand the particulars that can affect their account balance and to help them on their overall trading.
Regardless if investors trade the Forex market, cryptocurrencies or any other financial instruments, our complete suite of accurate Forex tools and calculators are programmed to work with any data inputted.
By using live market data, our set of calculators allows traders to always get the most accurate results possible, and they work with most FX pairs, metals and even cryptocurrencies. Also, these great calculators are translated into 23 different languages including Arabic, Russian, Japanese and Chinese.
With an intuitive design and a user-friendly interface, these calculators can be easily integrated with any web page. The substantial advantage is that they are completely unbranded, and can be fully customizable to any color scheme and to fit the layout of any web page.
If you're a webmaster and consider that these calculators can create added value for your website on a "Tools/Calculators" section, you are free to embed them on your website.
The embedding widget can be used as it is or it can be fully configured to match your website’s colours. When you are happy with the settings, simply copy/paste the final code to embed the tool/calculator widget on your page.