How Is Risk of Ruin Calculated? Checking Whether Your Capital Can Take It with the Simulator

Risk of ruin is the theoretical probability that, if you keep trading with your current win rate, payoff ratio and risk per trade, your capital will one day fall to a ruin line you have set yourself. The Risk of Ruin Simulator turns those numbers into a single percentage, so you can check whether your current lot size is too large.

Two things trip people up in practice: where the three inputs come from, and what the resulting percentage is sensitive to. With the same track record, moving the ruin line from 50% to 0% or switching position sizing from a fixed amount to a fixed fraction changes the answer by two orders of magnitude.

The three numbers come from your trading report, the ruin line is your own decision, and the ruin line sets the size of the answer. The sections below cover how to pull the three numbers out of an MT5 trading report, how the tool turns them into a probability, what happens to one track record as the ruin line and sizing method change, and a monthly check routine.

1. What Risk of Ruin Is and What the Simulator Calculates

Risk of ruin is a conditional probability: assuming your win rate and payoff ratio stay the same and you risk the same share of capital on every trade, how likely is it that your capital falls to the ruin line at some point?

Four numbers decide it: win rate, payoff ratio (average win ÷ average loss), risk per trade and the ruin line. One setting is added on top: whether each trade risks a fixed amount or a fixed fraction of whatever capital you have at the time.

The tool page carries a detailed guide below the simulator: how to read the four-level verdict, four typical patterns, a five-step workflow and an FAQ. It is worth reading once before the first use.

Open the Risk of Ruin Simulator

The screen has three parts:

• ① Your inputs: win rate, payoff ratio, risk per trade and ruin line, each with a slider and a number box. Typing the number is more precise than dragging the slider

• ② Position sizing: fixed amount risks the same cash amount, based on your starting capital, on every trade; fixed fraction risks the same percentage of whatever capital you have, so the amount shrinks as capital shrinks

• ③ Results: the risk of ruin under these settings and its four-level verdict, plus three figures. Expectancy per trade is in R, where 1R is the amount risked on one trade. Losses you can absorb is how many stop-outs in a row it takes to go from current capital to the ruin line. Max risk % to stay safe is how far risk per trade can be raised before the verdict leaves the Safe zone at your current win rate and payoff

Below that are two charts: a heat map of win rate against payoff ratio, and a curve of risk of ruin against risk per trade. Section 5 covers both.

It suits situations like these:

Your situation	What the tool gives you
You want to know whether your current lot size is too large	Risk of ruin and the four-level verdict
You are about to switch strategies or start running an EA	A first calculation from backtest or forward-test win rate and payoff
You want to know how far lot size can be raised	Max risk % to stay safe, and where the curve starts to climb
You want to know whether a slight dip in performance would sink you	The Fine view of the heat map, to see the color of neighboring cells

There is one page on the site that tends to get compared with it: the Monthly Profitable Customer Ratio shows the share of Titan FX clients whose account grew in a given month, and in recent years it has moved between the low 30s and the high 40s in percentage terms. That ratio is a headcount, answering "how many people were profitable this month"; the simulator answers "can my capital survive my own track record". They are different questions, and the ratio cannot be entered into the simulator as a win rate.

2. Where Win Rate, Payoff Ratio and Risk per Trade Come From: The MT4/MT5 Trading Report

The guide says to calculate win rate, average profit and average loss from your last 50 to 100 trades. There is no need to work these out yourself; the trading platform's report already has them.

Taking MT5 as the example: right-click in the History tab of the Toolbox, choose Report and save it as HTML, and the browser opens a full report whose statistics section at the bottom contains these fields (the steps are covered separately):

Simulator field	Report field	Conversion
Win rate	Profit Trades (% of total)	Enter the percentage in brackets as is
Payoff ratio	Average profit trade, Average loss trade	Divide the first by the absolute value of the second
(to cross-check)	Profit Factor	The guide's FAQ formula: payoff = PF × (1 − win rate) ÷ win rate
(to compare)	Maximum consecutive losses	Set it against the simulator's losses you can absorb

In MT4, right-click in Account History and choose Save as Detailed Report; the trade summary carries the same fields (see the MT4 steps). For an EA, use the backtest or forward test report directly; the field names are the same.

Narrow the period to a recent window before exporting so that the count lands between 50 and 100 trades. The guide warns that too few trades makes the error too large.

Risk per trade is not in the report; you calculate it yourself. It is the amount lost when a trade's stop is hit, as a share of account capital:

stop distance × value per pip × lots ÷ account capital

Suppose the account holds 10,000 dollars and you trade 0.4 lots of EURUSD with the stop 50 pips away. At 10 dollars per pip per lot, a stop-out loses 0.4 × 50 × 10 = 200 dollars, so risk per trade is 2%.

If lot size and stop distance vary from trade to trade, calculate each from the settings at entry and enter the one you use most; if the strategy runs on a fixed 1% or 2% rule, enter the rule's figure. The report's average loss trade cannot stand in for it: early exits, moved stops and slippage all pull the realized loss away from the amount planned at the stop.

Working back from risk per trade to lot size is covered in full in the 2% rule article linked at the end of section 5.

The ruin line is your own decision. The guide's advice is to set it at the level where you would stop trading, and to try 20% to 50% if you have no view yet. Section 4 shows how much this number moves the result.

3. How the Probability Is Calculated

The full formula is at the bottom of the tool page. Think of the amount risked on one trade as one step: a win moves you forward by the payoff ratio in steps, a loss moves you back one step. The calculation has two stages.

Stage one: the probability of the account slipping back one net step. Starting from any position, what is the probability that capital is ever one step lower than it is now? This depends only on win rate and payoff ratio, not on lot size. The higher the win rate and the larger the payoff, the smaller it is.

Stage two: count the steps to the ruin line. In fixed-amount mode, steps = (1 − ruin line) ÷ risk per trade, which is exactly the "losses you can absorb" figure on screen. Risk of ruin is the stage-one probability raised to that power.

Take a track record of 45% win rate, 1.6 payoff and a 50% ruin line. At 2% risk per trade there are 25 steps to the ruin line, risk of ruin is 0.53% and the verdict is Safe. Change risk per trade to 5% and the steps drop to 10; the same "one step back" probability is multiplied only 10 times, risk of ruin jumps to 12.32% and the verdict becomes Danger zone. Not one digit of win rate or payoff changed; only the number of steps did.

This is the source of the cliff the guide keeps mentioning. When the number of multiplications falls, the probability rises geometrically: from 25 steps to 10, it grew more than twentyfold. The curve turning sharply upward past a certain risk per trade is a picture of the same thing.

The "one step back" probability is not shown on screen, but its role can be read from the results. With positive expectancy and enough steps, it is small enough to push the total near zero. Once expectancy is zero or negative it equals 1, and any power of it is still 100%, which is the guide's "stays at 100% whatever you adjust" case. Shrinking the lot only delays the hit; what needs fixing is win rate and payoff, meaning the strategy itself.

4. Why the Same Track Record Differs So Much: Ruin Line, Fixed Amount and Fixed Fraction Measured

Keeping 45% win rate, 1.6 payoff and 2% risk per trade, and changing only the ruin line and the sizing method, the simulator returns the following:

Ruin line	Sizing	Losses you can absorb	Risk of ruin	Verdict	Max risk % to stay safe
50%	Fixed amount	25	0.53%	Safe	up to 2.3%
20%	Fixed amount	40	0.02%	Safe	up to 3.6%
0% (capital almost gone)	Fixed amount	50	under 0.01%	Safe	up to 4.5%
50%	Fixed fraction	34	0.14%	Safe	up to 2.8%

The ruin line changes the number of steps. A "capital to zero" ruin line stretches the count to 50 and the probability for this track record becomes too small to display; a "stop at half" ruin line leaves only 25 steps, and the same track record comes out two orders of magnitude higher.

Those two figures answer different questions. 0.53% is the probability of falling to half; under 0.01% is the probability of falling to almost nothing. The end points differ, so the two cannot be compared side by side.

Max risk % to stay safe moves with it: 4.5% at a 0% ruin line, only 2.3% at 50%. That is why the guide asks you to decide where you would stop first; set that number loosely and every result after it loosens too.

Fixed fraction mainly changes the number of steps too. After each loss the capital is smaller, the next trade's risk amount shrinks with it, and reaching the ruin line takes more losses. In this mode the tool converts each trade's result into log capital and recalculates both the steps and the per-step probability; what you see on screen is the same 2% setting absorbing 34 losses instead of 25, and the probability falling from 0.53% to 0.14%.

The other side, noted in the guide's FAQ, is worth remembering: as risk per trade rises under fixed fraction, compounding makes losses weigh more than gains, the probability overtakes fixed amount and finally sticks at 100%. Slide the control and it shows immediately.

5. The Heat Map and the Curve: Working Back to Your Risk Ceiling

The verdict only answers "now"; the heat map and the curve answer "how far from the edge".

The heat map has two views. Standard (whole picture) uses 5% steps of win rate and representative payoff values to show the overall shape; Fine (around your inputs) centers on your current inputs and lists every cell across ±8% of win rate and ±0.45 of payoff.

For the guide's "safe zone on the edge of the cliff" check, use the Fine view. That your own cell is Safe means little; what matters is whether the color changes a few cells down in win rate. For the 45% and 1.6 combination, the cell at 43% is already 2.6%, outside the Safe zone.

The curve holds win rate, payoff and ruin line fixed and lets risk per trade run from 0% to 20%, drawing the resulting risk of ruin. The page's own reading note says the position just before the curve turns sharply upward is the risk % ceiling that still leaves some margin, and the "Max risk % to stay safe" figure above is the boundary calculated from the "under 1%" verdict.

That boundary is the theoretical exit from the Safe zone, not a recommended risk per trade. Set your actual figure below it, then use the Fine heat map to confirm you stay Safe when performance slips a little. To turn the percentage into a lot size, use the 2% rule calculation:

Position Sizing with the 2% Rule

To see what the equity curve itself might look like, the site's FX/CFD Equity Projection Simulator takes the same win rate and win/loss sizes, runs several hundred trades of equity changes and lists the worst cases.

6. A Monthly Check Routine

① Export a recent report. In the MT5 History tab, narrow the period to the last one to three months so the count falls between 50 and 100 trades, then save as HTML.

② Copy the three numbers. Profit trades % goes into win rate, average profit trade divided by average loss trade into payoff ratio, and risk per trade is calculated from your current lot size and stop distance. Round all three towards the conservative side; the guide notes that backtest figures usually beat live results.

③ Enter your own exit line as the ruin line. Do not leave this field at its default.

④ Read the verdict, then the Fine heat map. Once the verdict is Safe, switch to the Fine view and check the color two or three cells down in win rate; that is what a slightly worse month looks like.

⑤ Work back from the curve to a risk ceiling and convert it to lots. Max risk % to stay safe is the point where your current track record leaves the Safe zone; the figure you actually use should sit a step below it.

⑥ Repeat regularly. The guide suggests monthly. A low-frequency strategy with only a handful of trades a month should wait for enough trades instead. Win rate and payoff move with the market; risk per trade is the only number you decide, and, as the guide says, the one with the greatest influence on the probability.

7. FAQ

Q1: Can the Monthly Profitable Customer Ratio be used as a win rate?

No. That ratio divides the number of clients whose account grew in the month by the number of clients who traded, so its unit is people. A win rate is the share of your own trades that closed in profit, so its unit is trades. There is no conversion between them.

Q2: What if I have fewer than 50 trades?

The tool still calculates, but with a small sample the win rate and payoff are easily skewed by a few trades. The guide suggests the last 50 to 100 trades as the reference range. Until you have that, backtest or forward-test results can stand in, with the output treated as a provisional estimate.

Q3: If losses you can absorb is 25, am I safe until I lose 25 in a row?

The figure means "how many steps from current capital to the ruin line". Capital does not need 25 consecutive losses to get there; winning a little and losing more will grind it down just as well, and risk of ruin is the sum of all those paths. The report's maximum consecutive losses is a useful stress test: if a long losing streak has already happened and the losses you can absorb is not much larger, risk per trade deserves another look.

Q4: Can I enter the Kelly criterion's fraction as risk per trade?

Not advisable. The Kelly criterion gives the bet size that maximizes long-run capital growth, assuming the win rate and payoff are exactly right. For this article's 45% and 1.6, Kelly works out to about 10.6%; entered into the simulator with the same ruin line and fixed amount, that is a 37% Danger zone, and half Kelly at 5.3% is still Danger zone. The two tools answer different questions: one is growth speed, the other is survival.

Q5: If it shows 0.53%, does my account really have a 0.53% chance of ruin?

It is not a forecast for the real account. The figure assumes win rate, payoff and risk per trade stay constant for the whole period and leaves out slippage, spread widening and sudden regime changes; the "assumptions and limitations" note at the bottom of the page says so. The guide also notes that averaging-down and Martingale strategies are out of scope, because risk per trade changes every time and the calculated probability comes out lower than reality. It is more useful as a ruler for "how far from the edge my current record and lot size sit in theory" than as a prediction.

8. Summary

The Risk of Ruin Simulator turns four numbers into the theoretical probability that capital falls to the ruin line. The tool page's guide covers the verdicts, the four patterns and the check routine well; what needs handling first in practice is the input side.

Win rate and payoff ratio do not need calculating; they are in the statistics section of an MT5 trading report as profit trades %, average profit trade and average loss trade. Risk per trade is not in the report and comes from stop distance, pip value, lot size and account capital.

The probability itself is the "one step back" probability raised to the power n, where n is the number of steps to the ruin line, the losses you can absorb figure on screen. Lot size, ruin line and sizing method all change n: the same track record differs by two orders of magnitude between a 50% and a 0% ruin line, and fixed fraction adds nine steps over fixed amount.

Decide your own exit line first, then read the probability. Once the verdict is Safe, check the Fine heat map a few cells down in win rate, then work back from the curve to a risk ceiling. Recalculate regularly, remembering that of the three numbers, only risk per trade is yours to decide.

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Further Reading

• Beginner's Guide to Learning Forex Trading
• Why Forex Beginners Fail: 10 Mistakes & 7 Risk Strategies
• How to Set a Stop Loss? 5 Common Methods Compared
• Martingale Strategy: Complete Guide to Doubling-Down, Probability Math, and Historical Blowups
• Impact of Loss Cut and Strategies for Forex & CFD Traders

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Primary Sources

• Tool specification: the input fields, results block, the two heat map views and the curve of the Titan FX Research Risk of Ruin Simulator, the calculation note at the bottom of the page, and the four-level verdict, four patterns and FAQ in its guide
• Measured data: with 45% win rate and 1.6 payoff held fixed, the risk of ruin, verdict, losses you can absorb and max risk % to stay safe returned by the simulator when varying risk per trade (2%, 5%), ruin line (50%, 20%, 0%) and sizing method (fixed amount, fixed fraction)
• Trading report fields: the statistics fields of the trading report in the MetaQuotes MetaTrader 5 user guide (Profit Trades, Average profit trade, Average loss trade, Profit Factor, Maximum consecutive losses), and the Titan FX MT5/MT4 profit and loss report tutorials