Maximum Drawdown
In prop trading evaluations, maximum drawdown is the largest permitted cumulative loss from the initial account balance — the point at which the account's equity may not fall below at any moment during the evaluation or funded period, with any breach resulting in immediate account termination.
The breach is measured against either the account's initial starting balance (static drawdown) or its highest equity point during the evaluation (trailing drawdown). A single intraday equity excursion below the floor is sufficient to end the account, even if equity recovers before the position closes.
This page covers the mechanic; it is not trading advice.
Prop firm rules vary between firms and change frequently. Always verify specific rules directly with your firm before making any decision.
How maximum drawdown ends an account
The total loss limit for your entire challenge. If your account falls this far below the starting balance at any point, the challenge ends immediately with no appeal. Most firms set this at 8% to 12% of the account size — a $10,000 account with a 10% maximum drawdown breaches at $9,000.
The mechanic that surprises traders is the per-tick measurement. A trade that briefly draws down past the floor and then recovers within the same minute is still a breach — the firm's risk engine records the lowest equity reading, not the closing equity. Firms apply this rule consistently across static and trailing variants, and the breach is non-negotiable.
Counting losing trades to the floor
Account: $10,000. Maximum drawdown: 10% = $1,000. Floor sits at $9,000. Risk per trade: 1% = $100.
Consecutive maximum-loss trades before the floor is reached: $1,000 ÷ $100 = 10 trades. A 10-trade losing streak ends the challenge from the starting balance position. At 2% risk per trade ($200 per losing trade), the streak shortens to 5 trades.
If the account is at $10,500 (up $500), the buffer to the static floor remains $1,500 — the floor does not move with profits unless the firm uses a trailing variant. Under static drawdown the buffer grows as profits accumulate; under trailing drawdown the buffer remains fixed at $1,000 below the equity high until the drawdown floor lock triggers.
Related terms
Common questions
Does maximum drawdown include unrealised loss on open positions?
Yes for equity-based measurement, no for balance-based measurement. Most firms measure against live equity (including floating P&L on open trades), which means a position drawing down to a price level that would breach the floor ends the account even if the trader did not intend to hold to that level. Balance-based measurement (less common) only counts closed-trade losses, so a recovering position is not a breach. The firm's rules specify the method.
Can the maximum drawdown be reset after a near-breach?
No. The drawdown floor is fixed for the life of the evaluation or funded account. A trader who recovers from a near-breach does not regain a wider buffer — the floor remains in place. The only way to reset the floor is to fail and purchase a new challenge or, on a funded account, to receive a fresh account at the firm's discretion after a documented breach.