What risk of ruin means
Risk of ruin is the probability that a series of losses wipes out your account, or reduces it so far that recovery is effectively impossible. It is a concept borrowed from gambling and it applies squarely to trading, because both involve repeated bets with uncertain outcomes.
The uncomfortable truth it captures is that even a strategy with a genuine edge can blow up if positions are sized too large. A run of losses is not just possible; over enough trades it is certain to happen. The only question is whether your account can survive the worst run.
What drives it
Three things mainly determine risk of ruin: how much you risk per trade, your edge (the combination of win rate and risk-reward), and the inevitability of losing streaks. Risk a large fraction per trade and even a modest losing streak destroys the account; risk a tiny fraction and the same streak is survivable.
Losing streaks are longer than intuition suggests. Even with a 50% win rate, runs of many consecutive losses will occur if you trade long enough. A trader risking 20% per trade could be finished by a streak that a trader risking 1% would barely notice. The sizing, not the streak, decides the outcome.
A worked illustration
Consider risking 25% of your account per trade. Four losses in a row and you are down roughly two-thirds; a handful more and you are effectively wiped out. Such streaks are entirely normal over hundreds of trades, so this sizing carries a high risk of ruin regardless of any edge.
Now risk 1% per trade. The same losing streak dents the account by a manageable amount, and you live to trade again while your edge, if it exists, plays out over many trades. This is the whole argument for small position sizing: it pushes risk of ruin down toward negligible so that variance cannot end you before your edge can work.
The practical lesson
You cannot eliminate losing streaks, and you cannot know your true edge in advance. What you can control is how much you risk per trade, and that single choice does more to determine your survival than any entry technique.
Keeping risk per trade small is not timidity; it is the mathematics of staying in the game. The traders who last are rarely the ones who bet biggest — they are the ones who made sure no losing streak could ever finish them.