Balance Drawdown

A drawdown calculated from closed-trade balance only — open positions and unrealized PnL don't count toward the limit.

Definition

Balance drawdown measures losses based on the account's closed-trade balance, ignoring open positions and their unrealized PnL. As long as no trade has been closed at a loss, the balance stays flat even if a position is deep in the red on paper. Firms that use balance-based drawdown give traders room to hold losing positions without immediately breaching the rule — at the risk that those losses will register the moment the trade is closed.

Example

On a $100K account with a 10% balance drawdown (limit: $90K), a trader opens a position that drops $15K unrealized. Balance stays at $100K because nothing has closed; floating PnL shows -$15K. No breach yet. When the trade closes for a $15K loss, balance falls to $85K — breach. The drawdown triggers at the moment of close, not while the trade is open.

Why It Matters

Balance drawdown is more lenient than equity drawdown because unrealized losses don't count — but it encourages dangerous behavior like letting bad trades run in the hope they come back. Traders switching from an equity-drawdown firm to a balance-drawdown firm often get caught by the opposite problem: a 'breathing room' mindset that turns floating losses into realized ones in a single close.

Firms Using This (3)

FTMOFunded NextE8 Funding

Related Terms

Equity Drawdown
A drawdown calculated from real-time account equity — open positions and unrealized losses count toward the limit tick-by-tick.
Static Drawdown
A fixed maximum loss limit calculated from your starting account balance, not your peak balance.
Max Drawdown
The overall account loss cap — the total amount an account can drop before the firm closes it.
Trailing Drawdown
A drawdown limit that moves up as your account balance increases, but never moves down.
← All termsLast updated 2026-04-21