Risk of Ruin

Risk of Ruin - The probability that a trading system will lose so much capital that recovery becomes impossible. It is essentially the chance of going bankrupt given current strategy stats and bankroll. For example, a risk-of-ruin calculation might use trade win/loss distributions or Value-at-Risk to estimate how likely an adverse run of losses would wipe out the account. This metric helps position sizing and risk management: a low risk-of-ruin indicates the strategy is robust against worst-case loss streaks.