Risk Of Ruin

Filed Under: ,
Dictionary Says

Definition of 'Risk Of Ruin'


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 Says

Investopedia explains 'Risk Of Ruin'


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%.


comments powered by Disqus
Hot Definitions
  1. Private Equity

    Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
  2. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  3. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  4. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  5. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  6. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
Trading Center