Risk Management

Risk of Ruin

The risk that a series of losses (or one oversized loss) depletes trading capital to a point where recovery becomes impractical or impossible.

Risk of ruin refers to the risk that a series of losses, or one oversized loss, depletes trading capital to a point where recovery becomes impractical or impossible — a direct consequence of the asymmetric math where larger losses require disproportionately larger gains to recover from.

See the loss-recovery math underlying this concept in Why Risk Management Matters More Than Strategy.