Course 3 Rules · Lesson 10 of 18

Maximum Drawdown: Static and Trailing

Maximum drawdown is the most an account may lose overall before it is closed, typically 8 to 12 percent. A static drawdown is measured from the starting balance and never moves: on 100,000 dollars with a 10 percent limit, the account closes at 90,000, whatever profit was made in between. A trailing drawdown follows your highest equity or balance upwards, so profits raise the floor and a run of gains followed by a normal pullback can breach it.

What you'll learn

  • Define static and trailing drawdown
  • Understand why trailing is much harder
  • Recognise the variants firms use
static limit: 10% below the start, never movesequity peaktrailing limit follows the peak up
Static drawdown is measured from the starting balance; trailing drawdown follows your equity peak.

Static drawdown

The floor is fixed at the start. If you grow the account from 100,000 to 108,000, you still have 18,000 dollars of room before 90,000. Static drawdown rewards early profit, because it builds a cushion, and it lets a trader take a normal losing streak after a winning one. Most two-step forex firms use it, at least in the funded stage.

Trailing drawdown

The floor rises with your peak. With a 10 percent trailing limit, reaching 108,000 moves the floor to 97,200, and a pullback of 10.8 percent from the peak ends the account even though you are above where you started. Some versions trail on closed balance, which is milder; some trail on equity including open profit, which is brutal, because a trade that goes 5 percent in your favour and returns to break even has raised the floor without you banking anything.

Variants

  • Trailing until breakeven: the floor rises until it reaches the starting balance and then locks, common in futures firms.
  • End-of-day trailing: the floor updates once a day on closed balance rather than tick by tick.
  • Relative drawdown: the same as trailing under another name.
  • Static in the funded stage, trailing in the evaluation: check both stages separately.

What it means for your method

A trailing drawdown penalises giving back open profit, so it suits traders who take profit quickly and punishes those who let winners run. It also means a losing streak after a winning streak is far more dangerous than the same streak at the start. If your strategy has wide swings in open equity, a trailing-drawdown firm is the wrong firm, whatever its fee.

Key takeaways

  • Static drawdown is measured from the start and never moves; trailing follows your peak.
  • Trailing on equity is the harshest variant; trailing to breakeven is the mildest.
  • Check the drawdown type for both the evaluation and the funded stage.
  • Match the type to your strategy's equity swings.

Knowledge check

  1. A 100,000-dollar account with a 10 percent trailing drawdown on equity reaches 110,000 in open profit, then the trade closes at 100,000. What is the floor now?
Compare prop firms by drawdown type

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Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.

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