The maximum total decline in account equity allowed before an evaluation or funded account is terminated. Max drawdown represents the overall loss threshold for the entire account, as opposed to the daily loss limit which resets each day.
Why It Matters
- 1Max drawdown is the ultimate account survival boundary.
- 2While daily loss limits protect against single-day disasters, max drawdown tracks your cumulative losses from either your starting balance or your peak equity (depending on whether it's static or trailing). Breaching max drawdown means immediate account termination with no recovery option.
- 3Understanding whether your firm uses static or trailing max drawdown fundamentally changes how you should size positions and manage risk throughout the evaluation.
Example
- 1You have a $100,000 account with a 10% max drawdown ($10,000). Your drawdown floor is $90,000. Over three weeks of trading, you experience the following: Week 1 profit of $3,000, Week 2 loss of $5,000, Week 3 loss of $4,000. Your balance is now $94,000 — still above the $90,000 floor.
- 2But one more $4,001 loss would terminate the account.
Common Mistakes
- ✖Confusing max drawdown with daily loss limit — they are separate rules tracked independently • Not knowing