What Is Max Drawdown?

TERMES DU GLOSSAIRE

What Is Max Drawdown?

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.

Point clé à retenir

Max drawdown is the maximum loss a prop firm account can take before the challenge or funded account ends. Static drawdown is measured against the starting balance. Trailing drawdown moves up with profits. Understanding which method a firm uses and how daily loss limits interact with it is the most important step before purchasing a challenge.

QUESTIONS FRÉQUEMMENT POSÉES

Quelle est la différence entre le drawdown statique et le drawdown glissant ?

Static drawdown is measured against the starting balance of the account and does not change as the account grows. Trailing drawdown moves up with profits, which means the breach point tightens each time the account reaches a new high. Trailing drawdown is more restrictive in practice, especially during the funded stage.

Does open profit or loss count toward max drawdown?

It depends on the firm. Some calculate drawdown against the account balance only, meaning open positions do not pull the account toward the breach point until they are closed. Others calculate it against equity, which includes unrealized profit and loss in real time.

What happens when an account breaches max drawdown?

The challenge fails, or the funded account closes, depending on which stage the account is in. Some firms allow the trader to reset for a reduced fee. Others require a full repurchase. The specific consequence depends on the firm and the rule that was breached.

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