Many people will talk about their forex Risk-Reward ratios such as it’s important to have 2:1, 3:1, or whatever to one ratio, but this is just the tip of the iceberg of risk-management and leaves you uninformed and un-empowered. You can actually have a 3:1 Reward-Risk ratio and lose all the money in your account. You can also have a 1:1 Reward-Risk ratio and make money day in day out.
How can you understand the difference between the two? Through the Risk-of-Ruin formula.
We did a 1hr webinar on Risk Management, the Risk of Ruin formulas and how critical they are, whether you are trading Price Action Strategies, Ichimoku Kinko Hyo, or any other system.
I got many requests for the information contained in the Risk of Ruin formulas so I am posting all the tables here so you can see the mathematics of your trading and whether you have the numbers in your favor. Here they are below:
Risk of Ruin Formula using 10% Risk/Trade
| ROR% with 10 capital at risk | |||||
| Win Ratio % | Payoff Ratio 1:1 | PR 2:1 | PR 3:1 | PR 4:1 | PR 5:1 |
| Win Ratio 10% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 15% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 20% | 100 | 100 | 100 | 100 | 46.6 |
| Win Ratio 25% | 100 | 100 | 100 | 30.5 | 16.3 |
| Win Ratio 30% | 100 | 100 | 27.7 | 10.2 | 6.1 |
| Win Ratio 35% | 100 | 60.9 | 8.2 | 3.53 | 2.33 |
| Win Ratio 40% | 100 | 14.2 | 2.5 | 1.24 | 0.888 |
| Win Ratio 45% | 100 | 3.41 | 0.761 | 0.426 | 0.329 |
| Win Ratio 50% | 100 | 0.813 | 0.226 | 0.141 | 0.116 |
| Win Ratio 55% | 13.4 | 0.187 | 0.0635 | 0.0438 | 0 |
| Win Ratio 60% | 1.73 | 0.0401 | 0 | 0 | 0 |
| Win Ratio 65% | 0.205 | 0 | 0 | 0 | 0 |
| Win Ratio 70% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 75% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 80% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 85% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 90% | 0 | 0 | 0 | 0 | 0 |
Risk of Ruin Formula using 5% Risk/Trade
| ROR% with 5 capital at risk | |||||
| Win Ratio % | Payoff Ratio 1:1 | PR 2:1 | PR 3:1 | PR 4:1 | PR 5:1 |
| Win Ratio 10% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 15% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 20% | 100 | 100 | 100 | 100 | 21.7 |
| Win Ratio 25% | 100 | 100 | 100 | 9.33 | 2.67 |
| Win Ratio 30% | 100 | 100 | 7.67 | 1.03 | 0.372 |
| Win Ratio 35% | 100 | 37.1 | 0.672 | 0.124 | 0.0544 |
| Win Ratio 40% | 100 | 2.03 | 0.0623 | 0 | 0 |
| Win Ratio 45% | 100 | 0.116 | 0 | 0 | 0 |
| Win Ratio 50% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 55% | 1.81 | 0 | 0 | 0 | 0 |
| Win Ratio 60% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 65% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 70% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 75% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 80% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 85% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 90% | 0 | 0 | 0 | 0 | 0 |
Risk of Ruin Formula using 2% Risk/Trade
| ROR% with 5 capital at risk | |||||
| Win Ratio % | Payoff Ratio 1:1 | PR 2:1 | PR 3:1 | PR 4:1 | PR 5:1 |
| Win Ratio 10% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 15% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 20% | 100 | 100 | 100 | 100 | 2.2 |
| Win Ratio 25% | 100 | 100 | 100 | 0.266 | 0 |
| Win Ratio 30% | 100 | 100 | 0.163 | 0 | 0 |
| Win Ratio 35% | 100 | 8.37 | 0 | 0 | 0 |
| Win Ratio 40% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 45% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 50% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 55% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 60% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 65% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 70% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 75% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 80% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 85% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 90% | 0 | 0 | 0 | 0 | 0 |
Risk of Ruin Formula using 1% Risk/Trade
| ROR% with 5 capital at risk | |||||
| Win Ratio % | Payoff Ratio 1:1 | PR 2:1 | PR 3:1 | PR 4:1 | PR 5:1 |
| Win Ratio 10% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 15% | 100 | 100 | 100 | 100 | 100 |
| Win Ratio 20% | 100 | 100 | 100 | 100 | 0.0485 |
| Win Ratio 25% | 100 | 100 | 100 | 0 | 0 |
| Win Ratio 30% | 100 | 100 | 0 | 0 | 0 |
| Win Ratio 35% | 100 | 0.701 | 0 | 0 | 0 |
| Win Ratio 40% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 45% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 50% | 100 | 0 | 0 | 0 | 0 |
| Win Ratio 55% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 60% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 65% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 70% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 75% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 80% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 85% | 0 | 0 | 0 | 0 | 0 |
| Win Ratio 90% | 0 | 0 | 0 | 0 | 0 |
Hopefully after viewing the Risk of Ruin tables and underlying forex trading risk mathematics, you will begin to look at your trading differently, analyze whether you have the mathematics in your favor to make money day in day out, or are setup to lose money. Understanding the mathematics of risk can make all the difference in the world so make sure you study these numbers in relation to trading your rule-based system.
Trading Foreign Exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advisce from an independent financial advisor if you have any doubts.
Editors’ Picks
EUR/USD tests nine-day EMA support near 1.1850
EUR/USD inches lower during the Asian hours on Monday, trading around 1.1870 at the time of writing. The 14-day Relative Strength Index momentum indicator at 56 stays above the midline, confirming improving momentum. RSI has cooled from prior overbought readings but stabilizes above 50, suggesting dips could stay limited before buyers reassert control.
GBP/USD flat lines as traders await key UK macro data and FOMC minutes
The GBP/USD pair kicks off a new week on a subdued note and oscillates in a narrow range, just below mid-1.3600s, during the Asian session. Moreover, the mixed fundamental backdrop warrants some caution for aggressive traders as the market focus now shifts to this week's important releases from the UK and the US.
USD/JPY stays firm around 153.00 after Japan's Q4 GDP miss
USD/JPY kicks off the new week on a positive note as Japan's weak Q4 GDP growth tempers bets for an immediate BoJ rate hike and undermines the Japanese Yen. Investors, however, seem convinced that the BoJ will stick to its policy normalization path amid hopes that PM Takaichi's policies will boost the Japanese economy. In contrast, cooling US consumer inflation reaffirmed bets for more Fed rate cuts in 2026, which acts as a headwind for the US Dollar and should cap the currency pair.
Editors’ Picks
EUR/USD tests nine-day EMA support near 1.1850
EUR/USD inches lower during the Asian hours on Monday, trading around 1.1870 at the time of writing. The 14-day Relative Strength Index momentum indicator at 56 stays above the midline, confirming improving momentum. RSI has cooled from prior overbought readings but stabilizes above 50, suggesting dips could stay limited before buyers reassert control.
GBP/USD flat lines as traders await key UK macro data and FOMC minutes
The GBP/USD pair kicks off a new week on a subdued note and oscillates in a narrow range, just below mid-1.3600s, during the Asian session. Moreover, the mixed fundamental backdrop warrants some caution for aggressive traders as the market focus now shifts to this week's important releases from the UK and the US.
Gold slides below $5,000 amid USD uptick and positive risk tone; downside seems limited
Gold attracts fresh sellers at the start of a new week and reverses a part of Friday's strong move up of over $150 from sub-$4,900 levels. The commodity slides back below the $5,000 psychological mark during the Asian session, though the downside potential seems limited amid a combination of supporting factors.
Bitcoin, Ethereum and Ripple consolidate within key ranges as selling pressure eases
Bitcoin and Ethereum prices have been trading sideways within key ranges following the massive correction. Meanwhile, XRP recovers slightly, breaking above the key resistance zone. The top three cryptocurrencies hint at a potential short-term recovery, with momentum indicators showing fading bearish signs.
Global inflation watch: Signs of cooling services inflation
Realized inflation landed close to expectations in January, as negative base effects weighed on the annual rates. Remaining sticky inflation is largely explained by services, while tariff-driven goods inflation remains limited even in the US.
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