John Harris

View translation

What is risk of ruin in trading?

Risk of ruin measures the probability of losing enough capital that recovery becomes nearly impossible. High leverage, poor risk management, and emotional trading increase this risk. For example, risking 10% per trade creates a high ruin probability, while risking 1–2% keeps ruin unlikely. Traders calculate risk of ruin using win rates, payoff ratios, and position sizing. Professional traders design systems with extremely low ruin probabilities to ensure survival over thousands of trades.