Risk of Ruin
The probability that a sequence of losses takes an account below the point where it can keep trading — driven by size per trade more than by win rate.
Also called: drawdown risk · account blowup · ruin probability
What it means
Losing streaks are a normal feature of any strategy that is right less than always. A method winning 55% of the time produces a run of eight losses with unremarkable frequency over a few hundred trades. Risk of ruin asks whether the account survives that run.
Size per trade dominates the answer. Risking 2% per trade, eight consecutive losses costs about 15% of the account — recoverable. At 10% per trade the same streak costs around 57%, and the recovery required roughly doubles the account. Same strategy, same streak, different outcome, entirely because of sizing.
The asymmetry is arithmetic: a 50% drawdown needs a 100% gain to undo. Losses compound against you faster than gains compound for you.
How OptionLab Pro’s engine uses it
In the live engine
The paper book enforces the same gauntlet the live path does, in a fixed order: a −3% daily-loss circuit that blocks entries for the rest of the IST day, a 24-hour cooling-off stamp when it fires, a post-stop cooldown, a maximum of 5 concurrent positions and 1 per instrument. Slippage is modelled at 15 bps on entry and 20 bps on exit — deliberately pessimistic, because a paper book that fills better than reality manufactures an edge the trader cannot reproduce with money.
go/internal/risk/ (CheckEntry, cooldown) · frontend/src/lib/paperRules.jsThe common mistake
Where traders get this wrong
Judging a strategy on average return without looking at the worst sequence. The average is survivable and the sequence may not be — and only one of those two gets you to the next trade.
Go deeper
There is a full lesson on this in the Academy, with an interactive widget and a Hindi translation.
Related terms
Educational and analytical content only. OptionLab Pro is not a SEBI-registered investment adviser or research analyst and does not give buy or sell recommendations. Derivatives trading carries a high risk of loss.