Glossary / Glossary term
Drawdown
Drawdown is the fall in an account from a reference point; prop firms turn it into loss floors that must not be crossed.
In trading, drawdown is how far an account has fallen from a reference point, usually a previous high. In a prop firm challenge, drawdown limits become floors: equity must stay at or above them, and crossing one ends the account.
The two drawdown limits here
- Daily: at most 4% of the starting balance below the day's anchor on Classic 1-Step. See daily loss limit.
- Total: at most 8% of the starting balance below the start, and the floor is static: measured from the starting balance, it never moves. See max loss limit.
What to check at any firm
Three questions decide how much room a drawdown limit really gives: is it measured on balance or on equity, is the reference point fixed or does it trail your highs, and is it checked continuously or at the end of the day. Here it is measured on equity, continuously; the static vs trailing guide covers the reference point.
Related
- Daily loss limitThe daily loss limit is the most equity may fall in one trading day, measured from that day's anchor; crossing the floor ends the account.
- Max loss limitThe max loss limit is the most an account may lose in total; equity must stay above the starting balance minus that amount.
- Trailing drawdownA trailing drawdown is a loss floor that rises with the account's high, at the end of each day or on every price move, and never falls back.
- Static vs trailing drawdownTwo accounts with the same max loss can have very different room. What static, end-of-day and intraday trailing drawdown mean, and which one we use.