Risk of Ruin
Risk ManagementThe statistical probability that a strategy eventually loses enough in a row to wipe out the account — driven mainly by position sizing.
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.
Related terms
More in Risk Management
After Risk of Ruin
CalculatorPosition Size CalculatorSize your position from your account balance, risk percentage and stop-loss distance — the core risk-management calculation.GuideHow to Measure Risk Across All Your Open PositionsRisk per trade only describes one ticket. How to add up what your stops are worth, split the book into currencies, and read the margin figures the platform is already showing you.