What Is Risk of Ruin?
Risk of ruin describes the possibility that poor risk management and an unfavourable sequence of results could cause severe or unrecoverable account damage.
The larger your risk per trade, the more vulnerable your account becomes to losing streaks.
Example
If you risk 10% per trade and experience a losing streak, your account can decline rapidly.
If you risk 1%, the same losing streak is much easier to survive.
Professional Mindset
Professional traders don’t ask:
“How much can I make?”
They also ask:
“How much can I lose?”
And:
“Can my account survive a bad period?”
Key Takeaways
- Large risk creates large drawdowns.
- Losing streaks are inevitable.
- Protecting capital gives your strategy time to work.
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
