Max Drawdown

Definition: Max drawdown (also called maximum overall loss or maximum total drawdown) is the maximum total loss a prop firm account is allowed to sustain over its entire lifetime, calculated from the initial account balance. Unlike the daily loss limit, it does not reset. Once the max drawdown threshold is hit, the account is permanently terminated.

Static vs. Trailing Drawdown

Static drawdown: The floor is fixed at a percentage of the initial balance and never changes. FTMO's 2-Step challenge uses static drawdown: a $100,000 account has a permanent floor at $90,000 regardless of how much profit has been made.

Trailing drawdown: The floor moves upward as equity grows but never moves downward. The5ers uses this model: if a $100,000 account reaches $110,000 equity, the drawdown floor moves to $101,000. More room is earned through profit, but that room also shrinks the allowed loss range.

Why Trailing Drawdown Is More Dangerous

With trailing drawdown, a trader who reaches an equity high and then gives back profits faces a tightening window. The same percentage move that was safe at the start of the challenge may now breach the limit.

How TradeBrake Handles It

TradeBrake supports both static and trailing drawdown calculation. The model is configured per account in the dashboard and synced to the plugin automatically across all supported trading platforms. When max drawdown is reached, all positions are closed and the account is locked.

Related Terms

• Daily Loss Limit
• Prop Firm Challenge
• Trading Platform Plugin