What Is Risk of ruin?

In quantitative finance, Risk of ruin refers to the probability of incurring losses severe enough to render a trading account or strategy unviable. This can occur due to a series of consecutive losing trades, excessive leverage, or poor risk management practices.

To minimize the risk of ruin, traders should employ prudent risk management techniques, such as setting appropriate position sizes, using stop-loss orders, and maintaining a diversified portfolio. Additionally, monitoring the performance of a trading strategy and making adjustments as needed can help reduce the likelihood of ruin.

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