Drawdown

Watch for these when you buy accounts:

MLL (maximum loss limit): the same as maximum drawdown. Hit it and your account is breached. Example: Start $50K → max DD (or MLL) $2K → fail at $48K

DLL (daily loss limit): not always present. Hit it and your account will be deactivated for the rest of the day. Example: DLL $1K → get stopped at $49K, resume tomorrow.

Types of drawdown

1) EOD (end-of-day) Drawdown

If unsure, always opt for accounts with EOD drawdown.

• Updates only after market close, based on your ending balance
• Intraday swings don't affect it

How it works:

• You end the day with $51.5K → your drawdown updates to $49.5K the next day, maintaining the promised $2K value.
• Typically stops trailing once you build a buffer larger than the original DD. (Equity $53K, DD stops at $50K)

2) Trailing Drawdown

Harder to manage. Don't choose this unless you know what you are doing.

• Moves up with new equity highs (balance + unrealized PnL)
• Never moves down (if you round-trip your position back to breakeven, your drawdown may be slashed, or you may even breach the account)

How it works:

• Start: $50K account, $2.5K trailing DD → floor = $47.5K
• If, at any point in a trade, your equity (balance + unrealized PnL) reaches $51.5K, your floor moves to $49.5K. Drop below it at any point and the account is breached
• Typically stops trailing once you build a buffer larger than the original DD. (Equity $53K, trailing DD stops at $50K)

Practical Implications

• Drawdown is the single most important metric. Size positions relative to the DD limit, not account size.
• One oversized trade can hit DD, and you're out.
• Trailing drawdown may force you to take profit earlier and keep risk smaller than your strategy suggests.
• Decide before trading: how many losses until breach? For example, max 10 losses means 1 trade risk = 1/10 of max DD.