Risk & Drawdown
Drawdown
The maximum amount your account balance may fall before the account is breached. The single most important risk rule in prop trading.
In plain English
Drawdown is your total loss allowance. If your balance (or in trailing variants, your equity) falls to the drawdown level, the account fails instantly. How the level moves is what separates the types: end-of-day drawdown updates after the close, intraday trailing follows your open equity tick by tick, and static never moves.
The drawdown type changes how a rule of the same dollar size actually plays. A $2,000 end-of-day drawdown is far more forgiving than a $2,000 intraday trailing one, because the trailing version can be dragged up by a winning trade you did not close.
- A $50,000 account with a $2,000 drawdown breaches if balance touches $48,000 (static), or if equity touches a level that has trailed up behind your peak (trailing).