What is a drawdown?
Quick answer
Drawdown is a decline in account value from a reference point, measured in money or percentage. In prop trading it usually means the loss from the starting balance, from the day's opening value, or from the highest equity reached. Drawdown limits are the main rules that end evaluation accounts.
Detailed answer
Drawdown is the core risk measure in prop trading.
Types used in prop rules
- Daily drawdown: loss from the day's opening value.
- Maximum (static) drawdown: loss from the starting balance.
- Trailing drawdown: loss from the highest equity reached.
Measured on what
Most firms measure drawdown on equity, which includes open positions, so a floating loss counts.
Example
A $100,000 account rises to $106,000, then falls to $101,000.
- Drawdown from peak: $5,000, about 4.7%.
- Drawdown from starting balance: none, the account is still above $100,000.
The same moment can mean very different things depending on the rule.
Why definitions matter
"10% drawdown" can mean three different floors depending on the reference point. Firms that define it precisely avoid disputes.
On PropExecutor
The daily loss limit, maximum loss limit and trailing drawdown are separate rules, each with its own reference point described in the rule builder and shown in the trader's dashboard.
PropExecutor team · Updated
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