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Risk of ruin

In one line: The chance that losses shrink your account so far you can't continue.
Watch: 1% vs 10% Risk, No Setup, and 100x Leverage Explained · open on YouTube · 1-minute Short

Risk of ruin depends on three things. Your edge (Expectancy). How much you risk per trade. And how big a loss you count as 'ruined'.

Bigger bets mean a faster ride, in both directions. Even a strategy with a positive edge can blow up if each bet is too large. That idea is at the heart of the Kelly criterion literature (MacLean, Thorp and Ziemba).

Related

Sources & studies

  1. MacLean, Thorp & Ziemba, Good and bad properties of the Kelly criterion (PDF)

Risk and position sizingKelly criterionRisk per trade

Last checked: 2026-11-04 · Educational, not financial advice.

Education only, not financial advice. No signals. Backtests are hypothetical: real trading can be worse. Past results don't predict future results.