Losing all or nearly all of an account, usually in a short period, through oversized positions or a refusal to take a loss.
A blow-up is rarely one bad trade. The typical sequence is a loss outside plan, size increased to recover, stops abandoned, and a final position large enough that a normal move finishes the account. The last trade gets the blame and the first decision caused it.
What distinguishes it from a drawdown is that nothing survives to trade with, which makes it the only outcome a positive edge cannot recover from. That is what risk-of-ruin measures, and it is why fixed fractional sizing and hard limits exist.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Risk of ruin. The chance of losing the whole account, plotted against the share of it staked on each trade, for a method that wins 52% of the time at even money. The edge is the same all along the curve; only the bet size changes.
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