Who is it for?
Users who want to quantify risk before trading Anyone who verifies account and symbol specifications
Risk & Position Sizing
Risk of Ruin Simulator
Simulate fixed-fraction trading paths to estimate ruin-threshold frequency, final-capital percentiles and maximum drawdown distribution.
FreeNo installationEducational & analytical
Free with a TupTrader account
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The guide and calculation method stay public on this page. Sign-in is only required to open the interactive workspace.
Tool guide
What is risk of ruin in trading?
Risk of ruin is the probability that equity reaches a defined failure threshold under the model. This simulator assumes a fixed win probability, fixed win/loss sizes, independent trades and fixed-fraction risk, so the output is conditional on those assumptions rather than a universal risk-of-ruin formula.
Logic / formula
Each trade risks the selected fraction of current equity under the win/loss model; equity is floored at zero and the share of paths touching the ruin threshold is reported.
Read the output
Read ruin probability with the threshold, horizon, simulation count and sensitivity to risk per trade. Zero simulated ruin paths does not mean true risk is zero.
TT-FT-011 · versioned engine risk-of-ruin@2.0.0 · educational/analytical use; not investment advice.
Full guide, examples, and sources
When should you not rely on it?
Guessed inputs or invalid broker specifications Using it as a profit forecast
Logic, formula and methodology
Risk of ruin is the probability that equity reaches a defined failure threshold under the model. This simulator assumes a fixed win probability, fixed win/loss sizes, independent trades and fixed-fraction risk, so the output is conditional on those assumptions rather than a universal risk-of-ruin formula. Each trade risks the selected fraction of current equity under the win/loss model; equity is floored at zero and the share of paths touching the ruin threshold is reported.
Seeded fixed-fraction Monte Carlo paths with account-capital compounding, a configurable remaining-capital ruin threshold, costs in R, final-capital percentiles, maximum-drawdown percentiles, and ruin-event frequency.
Worked example
Example
1% risk, 45% win rate, and 2R average win
A 1% fixed-fraction risk with 45% wins and 2R average wins should be evaluated across many paths; one path is not representative.
A 1% fixed-fraction risk with 45% wins and 2R average wins should be evaluated across many paths; one path is not representative.
How to read the result
The headline number must be read with assumptions and warnings. Out-of-bound values should be corrected before trading.
Read ruin probability together with the threshold, number of paths, ending-capital percentiles and max-drawdown percentiles. Zero ruined paths only means none were observed in this simulation count; it does not prove true probability is zero. A risk surface is more informative than a single point when testing sensitivity.
What the TupTrader version adds
The value of this version is not cosmetic; the result, assumptions and workflow are connected to the practical capabilities below.
- Risk surface heatmap
- Risk-per-trade × win-rate matrix
- Final capital fan
- Drawdown distribution
- Ruin-threshold comparison
- Scenario A/B/C
- Explain-why panel
- Saved Risk Policy
Turn the result into a workflow
Related tool →Cross-check the result with the broker or platform. Record risk in the entry checklist. Record the actual value in the journal after the trade.
Common mistakes and limitations
- Confusing risk with margin or potential profit
- Ignoring costs and rounding
- Using the wrong unit or currency
- The model is sensitive to win rate, payoff, cost and stationarity assumptions. Regime changes, tail slippage and correlated trades can produce different real paths.
Frequently asked questions
Must the ruin threshold be zero capital?
No. You can define an operational remaining-capital threshold meaningful for your account rules.
Why does fixed fraction matter?
Because money risk changes with equity, making the capital path nonlinear.
Does 0% simulated ruin mean the strategy is safe?
No. Zero observed events are conditional on the model assumptions and number of paths and are not a guarantee.
Sources and research method
This guide combines the tool’s versioned specification, the earlier TupTrader educational page and the authoritative sources below. External sources are used for definitions and scientific boundaries, not for signals.
- CME Group — Controlling RiskFixed-percentage risk and the nonlinear relationship between drawdown and recovery.
- Bailey et al. — The Probability of Backtest OverfittingRisk of selecting strategies on in-sample performance and subsequent out-of-sample degradation.
This tool is for education, scenario analysis and process control. It is not investment advice, a buy/sell signal or a guarantee of future performance.