Risk Management
Drawdown
Definition
The maximum amount your account balance can decline from its peak before the account is terminated.
How It Works
Drawdown is the most critical risk rule in prop trading. It defines how much you can lose before the firm closes your account.
For example, a $100K account with a 10% max drawdown means your balance cannot drop below $90K. If it does, your funded account is revoked.
There are several types of drawdown — static, trailing, and end-of-day — each calculated differently. Understanding drawdown rules is essential because they directly determine how much risk you can take per trade and overall.
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