What is Drawdown?
Drawdown is the percentage decline from an account's peak value to a subsequent low point. Prop firms track two types — daily drawdown (the maximum daily loss permitted) and maximum drawdown (the cumulative loss permitted before account termination). A 10% maximum drawdown on a $100K account means the floor is $90K. Drawdown is the single most important risk metric in prop firm trading because both types directly determine when an account fails.
Key takeaways
A decline from peak account value to a low.
Prop firms track two types — daily drawdown (the maximum daily loss permitted) and maximum drawdown (the cumulative loss permitted before account termination).
A 10% maximum drawdown on a $100K account means the floor is $90K.
Drawdown vs. Maximum Drawdown
Two terms that frequently get conflated. Here's how they actually differ.
DrawdownRisk Rules · ROOKIE
Maximum DrawdownRisk Rules · ROOKIE
A decline from peak account value to a low.
The largest total loss permitted on an account.
Frequently asked questions
What is Drawdown?
Drawdown is the percentage decline from an account's peak value to a subsequent low point. Prop firms track two types — daily drawdown (the maximum daily loss permitted) and maximum drawdown (the cumulative loss permitted before account termination). A 10% maximum drawdown on a $100K account means the floor is $90K.
Why does Drawdown matter for prop firm traders?
Drawdown is one of the rule mechanics that decides whether a prop firm account survives or fails. Misunderstanding it is among the most common reasons traders fail evaluations and lose funded accounts — even when they hit the profit target.
How is Drawdown different from Maximum Drawdown?
Drawdown and Maximum Drawdown are commonly confused. Drawdown: A decline from peak account value to a low. Maximum Drawdown, by contrast: The largest total loss permitted on an account.
What should traders watch out for with Drawdown?
Read your firm's rulebook carefully — the same term can mean different things at different firms, and most traders fail by assuming the rules they're used to. Always re-verify limits and reset timings before your first trade.