Risk of ruin
Risk of ruin is the probability that an account loses enough capital to be unable to continue trading, given a particular win rate, average win/loss size, and risk taken per trade.
It reframes the important question. Most traders ask whether a strategy is profitable on average. Risk of ruin asks whether you survive the losing streaks that a profitable strategy will still produce — because a positive expectancy is worthless if a normal run of losses ends the account before the average asserts itself.
Losing streaks are ordinary
At a 50% win rate, a run of seven consecutive losses is unremarkable across a few hundred trades. At 2% risk per trade that is a 13% drawdown. At 5% per trade it is over 30%. At 10% it is more than half the account — from a streak that is statistically expected, not unlucky.
The variable you fully control is size. Win rate and market behaviour are not yours to set; risk per trade is entirely yours, and it is the input that decides whether an ordinary losing streak is an inconvenience or an ending.
Related terms
Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.
Knowing the vocabulary is the easy part.
Every term here can be learned in an afternoon. Applying them consistently under pressure is the part that decides outcomes — and the part we measure.