A rule used by some prop firms that modifies the standard trailing drawdown. Normally, a trailing drawdown moves upward as your profits grow, reducing the allowable loss as equity increases. With this rule, once your profits exceed the drawdown amount, the drawdown floor stops moving higher and locks at the account’s initial balance. This effectively converts the trailing drawdown into a static drawdown at the breakeven point, preventing further upward adjustments while still protecting the original starting capital.
Why It Matters
- 1The breakeven rule is one of the most trader-friendly features in prop trading.
- 2Without it, a trailing drawdown continues to rise indefinitely with your equity, meaning your drawdown floor could eventually exceed your starting balance.
- 3With the breakeven rule, once your drawdown floor reaches the initial balance (e.g., $100,000), it locks there and stops trailing.
- 4This gives you unlimited upside potential without the risk of failing below your starting balance.
- 5Firms offering this feature are significantly more attractive for strategies that aim for large profit targets.
Example
- 1Your $100,000 account has a $6,000 trailing drawdown.
- 2Initially, your floor is $94,000. As you profit, the floor trails up: at $102,000 equity, the floor is $96,000. At $106,000 equity, the floor reaches $100,000 — the initial balance.
- 3The breakeven rule locks the floor at $100,000. Now, even if your equity reaches $120,000, the floor stays at $100,000 — you can never lose the account as long as you stay above your starting balance.
Common Mistakes
- ✖Assuming all firms with trailing drawdown also have a breakeven rule — many don't
- ✖Not knowing exactly when the breakeven rule activates (some require the floor to reach initial balance, others have
- ✖Trading recklessly after the breakeven rule activates, thinking you can't fail