Risk of Ruin Simulator

What Does Ruin Mean Here?

Ruin means the first balance at or below a fixed percentage loss from initial capital. With 10,000 and a 30% threshold, the boundary is 7,000 even if the account previously rose. Paths stop at the first breach and keep that balance on the chart. The result counts breaches at any trade, not just a final loss.

Risking less than 100% of current equity cannot make a positive balance exactly zero in a finite number of this model's trades: each loss multiplies it by (1 − risk). A meaningful positive loss boundary avoids interpreting a mechanically zero bankruptcy frequency as safety.

Reproduce the Position-Sizing Math

For current balance B, risk fraction f, and payoff b: a win gives B × (1 + f × b); a loss gives B × (1 − f). At 2% risk and 1.5 reward/risk, 10,000 becomes 10,300 after a win or 9,800 after a loss. Eighteen consecutive 2% losses cross the 30% initial-capital boundary; seventeen do not. These are arithmetic examples, not recommendations.

1. Set a win probability and two net payoff outcomes. Include costs in the assumptions; the simulator does not add commissions or slippage separately.
2. Choose a positive starting balance, a loss threshold, whole trade count, and whole simulation count. A run is limited to ten million trade steps for browser responsiveness.
3. Run the simulation and compare the fraction of paths that breach. The chart shows only the first 15 sampled paths, not a confidence envelope or the full distribution.
4. Repeat with changed probabilities, payoffs, and sizing. Each run draws new random numbers, so results can differ even without changing inputs.

Sampling Error Is Not Model Error

For N independent simulated paths and an estimated hit fraction p, a rough standard error is √[p(1−p)/N]. This approximation is unreliable near zero or one. If zero of 5,000 paths breach, the exact one-sided 95% binomial upper bound is 1 − 0.05^(1/5000), about 0.060%. That bounds sampling uncertainty under the assumed model, not real trading risk.

Trades here are independent with a constant win probability and exactly two outcomes. Correlation, gaps beyond the assumed loss, variable payoffs, margin rules, fees, and changing market regimes are absent. Increasing simulation count does not repair those assumptions.

The formula calculator uses fixed cash risk and an unlimited-horizon diffusion approximation. This simulator uses current-equity risk and a finite horizon, so their percentages need not agree.

Simulation calculations run locally and do not submit these numeric inputs through a simulation API. This statement does not cover ordinary website analytics or linked products. No sign-up or payment is needed for this simulator.

Statistical reference: NIST binomial distribution and exact binomial confidence limits. These justify conditional sampling calculations, not the trading model.

Frequently asked questions