Risk of Ruin

Risk of ruin is the statistical probability that a trading strategy, given its win rate, risk-reward ratio, and position sizing, will eventually lose enough consecutive trades to wipe out the account (or breach a firm's drawdown limit). It rises sharply with oversized position sizing, even for a strategy with a genuine edge. Keeping risk of ruin low is really an argument for disciplined position sizing: a strategy that risks 1% per trade has a dramatically lower risk of ruin than the same strategy risking 10% per trade, even with identical win rate and payoff.