The probability that you will lose enough capital to effectively end your ability to trade.
Risk of ruin calculates the statistical chance of hitting a catastrophic drawdown based on your win rate, average R, and risk per trade. Even systems with a positive expectancy can have a significant risk of ruin if risk per trade is too high. The formula is exponential — small changes in risk per trade create massive changes in ruin probability.
A profitable strategy is worthless if you blow your account before the edge plays out. Risk of ruin is the bridge between having an edge and surviving long enough to profit from it. Reducing risk per trade from 5% to 1% can take ruin probability from near-certain to near-zero.
With a 55% win rate, 2R average, and 1% risk per trade, your risk of ruin for a 10% drawdown might be under 1%. Increase risk to 5% per trade with the same edge, and your risk of ruin jumps to over 30%.
Risk of ruin changes dramatically with risk per trade. Small increases in risk create exponentially higher probabilities of blowing your account.