Drawdown rules are the single most common reason funded traders get their accounts terminated. You can be profitable overall and still lose your account if you misunderstand how drawdown is measured. This guide explains everything you need to know.
What Is Drawdown?
Drawdown is the maximum loss your account is allowed to sustain before the prop firm closes your account. It's measured as the distance between your account's peak equity and its current value — or in some firms, between a fixed starting point and your current value.
Every prop firm sets a drawdown limit — typically between 5% and 12% of the starting account balance. Breach it, and your funded account is terminated, no matter how much profit you've made.
The Two Types of Drawdown
There are two fundamentally different drawdown systems used by prop firms, and confusing them is extremely costly.
1. Static (Fixed) Drawdown
Static drawdown is measured from a fixed point — usually your starting account balance. The threshold never moves, regardless of how much profit you make.
Example — Static Drawdown
$100,000 account with a 10% static drawdown limit. Your threshold is always $90,000. Whether your balance is $105,000 or $115,000, you're still breached if the account drops below $90,000. Your profits do NOT raise the floor.
Static drawdown is more trader-friendly because you can build a buffer by growing your account. TopStep and many futures firms use static drawdown.
2. Trailing Drawdown
Trailing drawdown follows your equity up as you profit, but never moves back down. The threshold locks in at the highest point your account reaches.
Example — Trailing Drawdown
$100,000 account with a 5% trailing drawdown. Your floor starts at $95,000. You grow to $105,000 — floor moves to $99,750. You grow to $110,000 — floor moves to $104,500. Now if you pull back to $104,600, you're fine. But if you pull back to $104,400, your account is terminated.
This is why trailing drawdown catches so many traders off guard. The better you trade, the higher the floor rises — and the tighter your margin becomes if you have a losing streak. FTMO and Apex use trailing drawdown on evaluation accounts.
EOD vs Intraday Trailing Drawdown
There's a further distinction within trailing drawdown that many traders miss:
- EOD (End of Day) Trailing: The drawdown floor only updates at the close of each trading day based on your closing balance. Intraday unrealised gains don't move the floor. This is more forgiving.
- Intraday Trailing: The floor updates in real-time as your account equity rises, including open unrealised profits. This is the stricter version — common on Apex funded accounts.
Common Mistake
You're up $4,000 on an open trade. Your trailing floor moves up with that unrealised gain. The trade reverses and you exit flat. Your floor is now $4,000 higher than when you entered the trade — even though you made nothing. This is how traders breach accounts on days they think they broke even.
How to Calculate Your Drawdown Threshold
Before every trading session, you should know your exact drawdown floor. Here's the manual calculation:
- Static: Starting balance × (1 − drawdown %)
- Trailing (EOD): Highest closing balance × (1 − drawdown %)
- Trailing (Intraday): Highest intraday equity × (1 − drawdown %)
Or use the Drawdown Calculator to get your threshold instantly and see exactly how much buffer you have remaining.
Practical Rules to Protect Your Account
- Never risk more than 1–2% per trade on a funded account.
- Know your drawdown type before you place a single trade.
- Check your floor before every session — especially after big winning days.
- Close all trades before news events if you're close to your limit.
- Use a Rule Checker before each trade to confirm you're within both drawdown and daily loss limits.
Key Takeaways
- Static drawdown has a fixed floor that never changes — profitable days help you build buffer.
- Trailing drawdown moves up with your equity — the better you do, the tighter the floor becomes.
- Intraday trailing drawdown includes unrealised P&L — your floor can rise even on flat days.
- Always know your exact drawdown floor before the session opens.