Risk of Ruin: The Probability You Go to Zero

Listen. I’ve been doing this for twenty-three years. I’ve seen traders blow six-figure accounts in a Tuesday morning. I’ve watched brilliant minds—genuinely clever people—systematically transfer their wealth to the market like some sort of financial Stockholm syndrome. And do you know what they all had in common? They never, ever calculated their risk of ruin.

Not properly, anyway. Sure, they’d say “I only risk 2% per trade,” which is great, mate, absolutely brilliant—except they had the emotional discipline of a toddler in a sweet shop and the position sizing calculation of someone who learned forex from a YouTube thumbnail.

Let me tell you about Risk of Ruin. Not the theoretical version in your dusty finance textbook. The actual, real-world version that governs whether you’re buying champagne next year or selling your watch on Depop.

What Is Risk of Ruin, Actually?

Risk of Ruin (RoR) is the mathematical probability that you will lose your entire trading account before you make enough profit to matter. It’s not some abstract concept. It’s not “could happen to someone else.” It’s the cold, brutal calculation of whether your specific trading strategy, with your specific win rate and your specific risk-per-trade, will eventually crater your account.

The equation looks deceptively simple:

RoR = ((1 - Edge) / (1 + Edge))^(Account Units)

Where:

• Edge = Your average profit per trade divided by your average loss per trade
• Account Units = Your account size divided by your risk per trade

See? Lovely little formula. And if you’re anything like the traders I know in Canary Wharf, you just skipped over it and thought “sounds complicated, I’ll just wing it.”

That’s how people go broke.

The Real-World Scenario

Let’s say you’ve got £10,000. You think you’re clever—you’ve got a 55% win rate, which, for the record, is absolutely elite tier stuff in retail forex. You risk £200 per trade (2%), and your average win is £300 while your average loss is £300. You’re balanced, you’re disciplined, you’re ready to conquer the market.

Except your RoR is approximately 12%.

Twelve percent. That’s not “might happen eventually.” That’s “will probably happen within your first hundred trades or so.” And frankly, if you think you can maintain a perfect 2% risk discipline for a hundred trades while watching your account fluctuate, you’re delusional. I’ve seen it. You hold firm for trade one, two, three, maybe ten. Then you get a string of losses, your account dips, and suddenly you’re thinking “right, I’ll just add a bit more to catch up.”

That’s when the RoR calculation stops mattering because you’ve become a suicide trader.

The Brutal Truth About Leverage

Here’s where it gets properly nasty. Most retail traders don’t just risk 2% of their account per trade. They use leverage. Lots of it. They think because they’re only using £10,000 of their own money but controlling £100,000 in the market that they’re somehow smarter than the rules of mathematics.

Spoiler alert: they’re not.

If you’re using 10:1 leverage and hitting your 2% stop loss, you’ve just lost 20% of your account in real terms. Your RoR calculation that assumed 2% risk just became theoretical garbage. You’re now operating in a completely different universe where account wipeouts aren’t probabilities—they’re inevitable.

I watched a kid—couldn’t have been more than twenty-four—explain to me how he was going to use 50:1 leverage on his £5,000 account because “the moves are small and you need to amplify them.” He thought he was clever. Six weeks later, he was working in Tesco explaining to someone why the Nectar card wasn’t working. The leverage had turned a 5% losing streak into a total account annihilation.

The Psychology Versus the Mathematics

Here’s the thing that really does my head in: traders know this stuff exists. They’ve read about it. Some of them can even recite the formula. But they don’t actually believe it applies to them.

That’s not trading psychology. That’s just stupidity wrapped up in optimism bias.

The traders I respect—the actual profitable ones—they don’t just calculate their RoR, they obsess over it. They know their exact win rate, their exact reward-to-risk ratio, and they’ve run the numbers through enough different calculators that they’ve got it tattooed on their brain.

A 55% win rate with a 1:1 risk-to-reward ratio? Your RoR at 1 Account Unit is roughly 9%. At 2 Units? 27%. At 3 Units? Suddenly you’re at about 45%.

But a 55% win rate with a 1.5:1 reward-to-risk? Your RoR at 3 Units drops to about 3%.

See? That’s the game. That’s what separates the survivors from the donation brigade.

The Bottom Line

Your risk of ruin is real. It’s not a “could happen” scenario. It’s a mathematical certainty under specific conditions. And here’s the beautiful part: you can actually control it.

You can control your win rate through strategy refinement. You can control your reward-to-risk ratio through intelligent position selection. Most importantly, you can control your Account Units by not being a complete muppet with your position sizing.

Use a calculator. Run the numbers. Actually look at what the probability says. And if it says you’ve got more than a 25% chance of going to zero? Change something. Don’t just accept it and hope you’re special. Spoiler alert: you’re not special. Nobody is.

I’ve made seven figures doing this job precisely because I spent hours—boring, mathematical hours—calculating my exact risk of ruin, understanding it, and refusing to take strategies that didn’t meet my threshold.

You know what most losing traders do instead? They trade with their gut, risk too much, refuse to do the maths, and then wonder why they’re broke.

Do the maths. Every single time.

Because the market doesn’t care about your hopes, dreams, or technical analysis. It cares about probability. And probability, mate, is a merciless master.

Now go use that calculator and actually look at the numbers.