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Trailing drawdown

A static loss limit is a line under your starting balance. A trailing one moves up behind every new high, and on most funded accounts it never moves back down.

2 min read

What it is

A trailing drawdown is a minimum equity level that rises with your account. Reach a new high and the floor follows; the distance between them is the allowance.

floor = highest point reached − allowance

On a $100,000 account with a $5,000 trailing allowance, the floor starts at $95,000. Grow the account to $103,000 and it rises to $98,000 — meaning you can now be profitable overall and still fail.

The two clauses that decide everything

Rulebooks describe this in two separate sentences, and traders routinely read only one.

1. When the floor is recalculated. Continuously, or once a day at a fixed hour. "End-of-day drawdown" answers this question and nothing else.

2. What the breach is checked against. Closed balance, or live equity including open positions — and, crucially, continuously or only at that same daily moment.

Almost every firm recalculates the floor daily and checks the breach in real time. So an intraday excursion can end an account whose daily statement shows no losing day at all. The phrase "end-of-day" feels like protection during the session; it describes when the line moves, not when it can be crossed. This is the subject of the article on it, because it is the single most misread rule in the industry.

Does it stop trailing?

The third variable, and it changes the size of the risk completely.

  • Trails forever — the floor keeps rising, and your allowance is always measured from the peak.
  • Locks at the starting balance — once the account is up by the allowance amount, the floor freezes at the initial deposit and your accumulated profit becomes a genuine buffer.

The second is far more forgiving, and it is a per-firm decision that changes with promotions and account types. Given that firms have changed such terms retroactively, a rule read once is not a rule you know — which is why any figure quoted about a specific firm needs a date attached to it.

Why our calculator does not pick a firm for you

The prop firm drawdown calculator asks you to enter your own numbers rather than choosing a firm from a list.

That is deliberate. A firm list implies the terms are known and current for every entry, and both parts of that are hard to guarantee across an industry that revises rules with little notice. Entering the numbers from your own dashboard removes the middle step where a stale table would quietly become your risk model.

More in Trading terms, defined by how they are computed

  • Net P&LThe result of a trade after commission and swap, and why the sign convention in broker exports makes double-counting so easy.
  • Profit factorGross profit divided by gross loss, the edge case that breaks it, and why a high profit factor on few trades means almost nothing.
  • ExpectancyThe expected value of one trade, the break-even win rate it implies, and why the figure needs an error bar to mean anything.
  • R-multipleExpressing results as multiples of the amount risked, why it survives account growth, and the case where R stops being comparable.
  • Win rateWhat share of trades finished positive, how break-even trades are counted, and why the figure is uninterpretable without the win-to-loss ratio.
  • Maximum drawdownThe largest peak-to-trough fall in your account, and the measurement choice that decides whether a prop account survives.
  • Consistency ruleA cap on how much of your profit may come from a single day or trade, why it exists, and how it turns a winning account into an unpayable one.