What Is Risk of Ruin?

Risk of ruin is the probability that a run of losses takes your account down to a level you cannot accept, such as a prop firm's maximum drawdown.

What drives it

• Risk per trade: the biggest factor. Doubling risk can increase risk of ruin many times over.
• Expectancy: a negative edge leads to ruin eventually at any size.
• Win rate and reward-to-risk: lower win rates produce longer losing streaks.
• Drawdown limit: tighter limits are reached sooner.

Example

A strategy winning 45% of trades with 2R winners rarely hits a 20% drawdown over 300 trades at 1% risk, but becomes far more likely to at 3% risk.

Run simulations with the risk of ruin calculator. Related: position sizing, Kelly criterion, drawdown. See the trading glossary.