What risk of ruin means
Risk of ruin is the chance that a run of losses takes your account down to the level you can't come back from: a prop firm's maximum loss, or a drawdown you've decided is the end. Even a profitable system has some risk of ruin, because losing streaks happen. If your system makes money on average, lowering the risk per trade is the most direct way to shrink it. If it loses money on average, lower risk only slows the losses down.
Prop challenge odds: what the numbers look like
| Win rate | Reward to risk | Risk per trade | Expectancy | Hits 10% max loss | Reaches 10% target first |
|---|---|---|---|---|---|
| 40% | 1:2 | 1% | +0.20R | 12.6% | 87.3% |
| 40% | 1:2 | 2% | +0.20R | 28.2% | 71.8% |
| 50% | 1:1.5 | 1% | +0.25R | 3.3% | 96.7% |
| 50% | 1:1.5 | 2% | +0.25R | 15.2% | 84.8% |
| 55% | 1:1 | 1% | +0.10R | 11.3% | 84.6% |
| 60% | 1:1 | 2% | +0.20R | 11.4% | 88.6% |
| 35% | 1:1.5 | 1% | -0.13R | 84.2% | 14.4% |
Two things stand out. First, for both profitable systems in the table, risking 2% instead of 1% more than doubles the chance of failing: from 12.6% to 28.2% at a 40% win rate and 1:2, and from 3.3% to 15.2% at 50% and 1:1.5. At 2% the 10% limit is only 5R below the starting balance instead of 10R, so ordinary losing runs reach it far more often. Second, a negative expectancy usually fails: at a 35% win rate and 1:1.5 (−0.13R a trade) with 1% risk, 84.2% of runs hit the loss limit first. Cutting the risk only slows this down; given enough trades, a system that loses on average almost always reaches the limit.
How the calculator works
Expectancy = Win rate × Reward to risk − Loss rate
The calculator simulates 20,000 runs. In each one, every trade is an independent win or loss, with the chance of a win equal to your win rate. Each run stops when the account reaches the maximum loss, the profit target, or the number of trades you set. The share of runs that hit the loss limit is your risk of ruin. The random numbers come from a fixed seed, so the same inputs always give the same answer; because it's a simulation, the result can still differ from the exact figure by up to about a percentage point.
Choose "starting balance" for a prop firm account, where 1% risk is the same dollar amount on every trade, or "current balance" if you risk a percentage of whatever the account is worth, which makes the loss limit harder to reach but slows recovery too.
What it doesn't include
- Daily loss limits. Most prop firms also have a daily limit; check your room for today with the drawdown calculator.
- Trailing drawdown. The loss limit here is static. A trailing limit moves up with your best balance and makes ruin more likely.
- Real streaks. Real trades aren't independent coin flips: a bad week in a changing market can bunch losses together.
- Costs. Spread and commission reduce your real reward to risk; the risk reward calculator shows by how much.
- Fixed outcomes. Every win is exactly your reward to risk and every loss exactly 1R; breakevens, partial closes and slippage past the stop aren't modelled.
- Uncertain inputs. A win rate measured over 50 trades can easily be 10 percentage points out, and the answer is only as good as the numbers you enter.
- Other rules. Minimum trading days, time limits and consistency rules aren't included.