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Risk of ruin is the probability of losing your entire trading account. It is one of the most important concepts in risk management, yet most traders ignore it.
Even a profitable strategy can fail if you risk too much per trade. High risk increases the chance of hitting a losing streak that wipes out your account.
The higher your risk per trade, the faster your risk of ruin increases.
If you risk 5% per trade, a small losing streak can significantly damage your account.
If you risk 1% per trade, you can survive many more losses and continue trading.
Your goal is not just to make money—it is to stay in the game long enough to succeed. Managing risk of ruin is what keeps you trading.