How Drawdown Is Actually Calculated (And Why It Matters)

Ask ten prop traders what a 5% maximum drawdown means and you will get several different answers. The disagreement is not about the number — it is about what the number is measured from.

Static drawdown

A static limit is anchored to your starting balance and never moves. On a $100K account with a 5% static maximum drawdown, the breach level is $95,000 on day one and $95,000 on day ninety. Every dollar of profit widens your buffer.

Trailing drawdown

A trailing limit follows your highest equity or balance upward. Make $5,000 and the breach level rises with you — meaning a trader who is up on the account can be closer to a breach than one who never made a dollar. This is where most unexpected account failures come from.

What we use

Our maximum drawdown is static, measured from the starting balance, on equity. The daily limit is measured from the day's opening equity and resets at 00:00 server time. Both definitions are published and both are timestamped if they ever change.

If a firm cannot state its drawdown definition in one sentence, that is the answer to your question.