What is risk of ruin?

What it means

It converts three familiar inputs into the number that actually matters: the chance the account does not survive long enough for the edge to appear. A system with a genuine positive edge can still be ruined by sizing, and risk of ruin is the calculation that shows where that line is.

Why it matters

The relationship with position size is steeply non-linear. Halving risk per trade does not halve risk of ruin — it typically collapses it by an order of magnitude, which is why the difference between 1% and 3% risk is not three times more aggressive but something closer to categorically different.

What this changes in practice

The risk of ruin calculator makes this concrete for your own numbers. The result is usually uncomfortable at the sizes most retail traders actually use, and that discomfort is the point of running it before rather than after.