Max Drawdown

The overall account loss cap — the total amount an account can drop before the firm closes it.

Definition

Max drawdown is the overall loss limit on a prop firm account, expressed as a percentage of starting balance (or peak balance, depending on the calculation method). Breach it and the account is closed. Max drawdown can be static (fixed from the starting balance), trailing (moves up with profits and locks in), or end-of-day trailing (moves up only at daily close). It is distinct from daily drawdown — max drawdown caps total account-level loss, while daily drawdown caps loss within a single day.

Example

A $100K account with a 10% max drawdown has a hard floor of $90K. The account cannot fall below that level regardless of intraday moves, closed-trade losses, or unrealized losses — once $90K is touched, the account is breached. If the drawdown is trailing rather than static, that $90K floor moves up as the account grows.

Why It Matters

Max drawdown is the single most important rule on a funded account because breaching it typically ends the account — no reset, no second chance unless the firm offers a paid reset option. Understanding whether a firm's max drawdown is static, trailing, or EOD-trailing directly changes how you size positions and when you take profit off the table. Traders who conflate max drawdown with daily drawdown are a large share of early account blowups.

Related Terms

Trailing Drawdown
A drawdown limit that moves up as your account balance increases, but never moves down.
Static Drawdown
A fixed maximum loss limit calculated from your starting account balance, not your peak balance.
EOD Trailing Drawdown
A trailing drawdown that only moves up at the end of the trading day, not tick-by-tick during the session.
Daily Drawdown
A per-day loss limit that caps how much an account can lose in a single trading day, separate from the overall max drawdown.
Drawdown Reset
What happens after a drawdown breach — typically account closure, though some firms offer a paid reset option.
← All termsLast updated 2026-04-21