What is equity drawdown?
Quick answer
Equity drawdown is a decline measured on equity, meaning the account balance plus the floating profit or loss of open positions. It captures losses on trades that have not been closed yet, which is why most prop firms measure their loss limits on equity rather than on balance alone.
Detailed answer
The difference between balance and equity drawdown is often the cause of trader confusion.
Balance drawdown versus equity drawdown
- Balance drawdown: counts only closed trades.
- Equity drawdown: counts closed trades and open positions.
Why firms use equity
Without equity measurement, a trader could hold a large losing position open indefinitely and never breach. Equity measurement catches risk as it happens.
Example
A $50,000 account has closed trades worth +$500, so the balance is $50,500. An open trade is $2,800 in loss, so equity is $47,700. Balance drawdown from the start: none. Equity drawdown: $2,300, or 4.6%.
What traders should know
A breach can happen without closing any trade, because an open loss pushes equity through the floor. Stating this clearly on a rules page avoids many disputes.
On PropExecutor
Loss limits are judged on equity on every price tick, and the dashboard shows equity alongside the floor, so traders see the floating loss approaching the limit.
PropExecutor team · Updated
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