Max drawdown is the maximum amount an account can lose before the trader fails the challenge or has the funded account closed. It is one of the most important rules for every prop firm model because it sets the boundary between staying in the program and being eliminated. Drawdown is measured continuously from a reference point, either the starting balance or the highest balance the account has reached, and the rule is enforced automatically by the platform’s risk engine.
The two most common drawdown structures are static and trailing. Static drawdown is calculated against the starting balance and does not change as the account grows. A $5,000 limit on a $100,000 account stays at $95,000 as the breach point, regardless of how much the trader earns.
Trailing drawdown moves up with profits, locking in gains but tightening the available loss tolerance. The same $5,000 limit on a trailing structure means that once the account reaches $108,000, the breach point moves to $103,000.
