DEFINITION
The probability of an individual losing sufficient trading or gambling money (known as capital base) to the point at which continuing on is no longer considered an option to recover losses.Risk of ruin is calculated by taking into account the probability of winning (or making money on a trade), the probability of incurring losses, and the portion of an individual's capital base that is in play or at risk. Also known as the "probability of ruin".
INVESTOPEDIA EXPLAINS
Risk of ruin need not result in bankruptcy (although it often does), but rather the point at which continuing on would be unwise. It signifies a risk more relevant in trading and gambling, where there is a high probability of losing an entire bet or trade.The risk becomes even greater for individuals who trade large percentages of their accounts. For example, say an investor has $3,000 and purchases $3,000 worth of call options. If there is a 40% chance that the options will not be exercised, then the risk of ruin is 40%.
RELATED TERMS

War Risk Insurance
A policy that provides financial protection against losses sustained from occurrences ... 
Headline Risk
The possibility that a news story will adversely affect a stock's price. Headline ... 
Call Option
An agreement that gives an investor the right (but not the obligation) to buy ... 
Capital Asset Pricing Model  CAPM
A model that describes the relationship between risk and expected return and ... 
Modern Portfolio Theory  MPT
A theory on how riskaverse investors can construct portfolios to optimize or ... 
Preservation Of Capital
An investment strategy where the primary goal is to preserve capital and prevent ... 
Risk
The chance that an investment's actual return will be different than expected. ... 
RiskReturn Tradeoff
The principle that potential return rises with an increase in risk. Low levels ... 
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. The more spread ... 
Risk Measures
Statistical measures that are historical predictors of investment risk and volatility ...
Related Articles

Investing Basics
Introduction To Investment Diversification

Retirement
Protecting Your Retirement Assets

Options & Futures
Cut Down Option Risk With Covered Calls

Active Trading Fundamentals
Using Logic To Examine Risk

Bonds & Fixed Income
Find The Highest Returns With The Sharpe ...

Options & Futures
Options Risk Graphs: Visualizing Profit ...

Options & Futures
An Introduction To Value at Risk (VAR)

Active Trading Fundamentals
How To Convert Value At Risk To Different ...

Options & Futures
Margin Trading

Chart Advisor
Add Some Sin To Your Portfolio With ...