What Is Risk of Ruin? The Odds of Blowing Up

Risk of ruin is the probability that a string of losses pulls your account down to a level you cannot come back from — either zero, or a personal stop-out point. It depends on three things: your expectancy, your win rate, and above all how much you risk per trade.

Why it matters more than your edge

A positive edge only pays off if you survive long enough to realise it. Even a profitable system has losing streaks, and if your risk per trade is too large, a normal streak can end the account before the edge ever shows up. Ruin is permanent; a good system that ruins you is worth nothing.

Risk per trade is the dial

The same edge can be nearly bullet-proof or nearly doomed depending on sizing:

Risk per trade	A 10-loss streak costs	Risk of ruin
1%	~10% of capital	very low
5%	~40% of capital	meaningful
10%	~65% of capital	high

The streaks are identical — only the position sizing changes. Small, consistent risk turns a survivable rough patch into a non-event.

How to use it

• Keep risk per trade small — most systematic traders cap it near 0.5–1% precisely to push ruin toward zero.
• Pair it with drawdown — drawdown is the pain you have already felt; risk of ruin is the chance the next stretch ends you.
• A positive edge is necessary, not sufficient — sizing is what keeps you in the game long enough for that edge to compound.