Prop firm accounts · Drawdown

Prop firm drawdown explained: the five choices behind the number

A drawdown is how far an account has fallen from its highest point before it gets back above it. Outside prop trading it is a measure of what has already happened; inside it, the same word also names the loss limit that closes the account once it is crossed.

The definition fits in a sentence, and that is not the hard part. The hard part is that two rulebooks can call two different calculations a drawdown, and the difference is not in the percentage they advertise but in five choices almost nobody reads. This page takes them apart one by one, so you can read any firm's drawdown without somebody translating it for you.

Sources read at origin on 13/09/2026 · linked at the end

This page explains a concept. It gives no trading advice

The five choices behind any drawdown

Measured on: balance
or equity
Checked: on every price
or at a set time
Measured from: initial capital
or the high point
What is subtracted: a fixed amount
or a share of the peak
Over what period: the day
or the whole account

No combination is the standard one: every rulebook picks its own and writes it down

What a drawdown is, outside prop firms and inside them

Outside prop trading it is a statistic: the deepest fall an account has taken from a high. Inside, it is also a line you cannot cross. Same word, read two different ways.

The most authoritative definition does not come from prop trading at all, but from US futures regulation. Section 4.10 of the CFTC's rules, which sets the vocabulary for the disclosure documents it requires from whoever runs futures pools or managed accounts, defines a drawdown as the losses a pool or an account experiences over a specified period.

It then defines the worst "peak-to-valley" drawdown: the greatest cumulative percentage decline in the account's month-end value, over any period in which that starting value has not been equalled or exceeded again. Two things are packed into that sentence, and they are exactly the ones that change from rulebook to rulebook. It is measured from a peak, not from the start, so an account can be up on where it began and deep in a drawdown at the same time. And it is measured at a particular moment: whatever happens between two month-ends stays out of the figure, however deep it went.

On a prop firm account the word still describes falls, but above all it names a contractual limit: a maximum distance from a reference point, calculated by the firm, which breaks the rule once it is passed. FTMO does not even use the term in its trading objectives. It talks about a maximum daily loss and a maximum loss, and describes both as a level below which the account's equity cannot drop. If drawdown is still a new word next to challenge and profit split, the whole vocabulary is in what a prop firm is and how one works.

Measuring a drawdown and capping one are not the same thing

A statistic describes what already happened, and whoever calculates it decides how to look. A limit decides what happens next, and whoever writes the contract calculates it. Reading one number by the rules of the other is where the mistake starts.

The maximum drawdown shown in a backtest or a track record is a backward-looking figure, and it depends on how often the account was looked at. On the same results, whoever reads the value at each month-end will never see a deeper fall than whoever reads it at each day's close, and that reader never a deeper one than whoever reads it on every price. That is not an opinion, it is how sampling works: each coarser reading can skip a low that the finer one catches, and never the other way round.

A limit works the other way round. It describes nothing: it is checked while the account is alive and, in FTMO's rulebook, the rule counts as violated the moment equity drops below the line. There is no month-end to smooth the number and no second reading. That is why setting a track record's maximum drawdown against a prop firm's limit compares two numbers that do not measure the same thing, even though they share a name.

It is also one of the reasons a historical result says less than it seems about how a system will behave inside a rulebook. What a backtest proves and what it does not, however good it looks, is set out in whether trading bots are reliable.

The five choices that change the number

Which quantity, at what moment, from which reference, what gets subtracted and over what period. Change any one of the five and the same fall moves from inside the line to outside it.

Balance or equity
FTMO defines both in its own FAQ: balance is the realised value of the account and only changes when a trade is closed; equity is balance plus the result of whatever is still open, and it moves all the time. A drawdown measured on balance does not see a loss until it is closed, and one measured on equity sees it while it is open. A single limit can also use both at once, and FTMO's daily limit does. How that combination works, and why it leaves less room than it seems to, is in the rules that quietly fail a challenge.
On every price or at a set time
A limit's reference can follow the account continuously or be taken at a fixed moment of the day, and the difference matters most when that reference rises. If it were taken on every price, a profit that appeared and vanished inside the same session would drag the line upwards without ever having been closed. Taken at a set time, only what is in the account at that moment counts. FTMO recalculates its daily limit — and, on the one-step programme, the overall limit too — at 00:00 CE(S)T, and writes that each calculation stays in force until the next.
From initial capital or from the high point
A static limit is always measured against the same point, the capital the account started with, and does not move whatever happens. A trailing one is measured against the highest point reached and rises with it. FTMO's wording for its one-step programme adds a detail almost nobody reads: the reference is the highest balance recorded at midnight on any preceding day or, if higher, the initial capital. So the line never sits below where it was on day one, and from there it can only go up. Why that way of measuring hits progressions that increase size after a loss especially hard is in whether martingale and grid are allowed.
A fixed amount or a share of the peak
A limit stated as a percentage can mean two different calculations. One takes that percentage of the initial capital and turns it into a fixed distance in money; the other takes it of the peak itself, so the distance grows as the account rises. FTMO writes the first for both limits: the loss amount is a percentage of the initial simulated capital, and in the trailing version what moves is the point it is subtracted from, not the size of what is subtracted. Two rulebooks advertising the same number can, through this choice alone, leave corridors of different widths.
The day or the life of the account
A daily limit is worked out again every session and only looks at what happens inside it; an overall limit accumulates from the start. Both run side by side on FTMO's two programmes, so being far from one tells you nothing about the distance to the other. And there is a sixth moment that is not in the strip, because it is an event rather than a way of measuring: on the one-step programme, taking a reward resets the overall limit. What that means is in how prop firm payouts work.

Why drawdown is the rule that closes the account

Because of the objectives FTMO publishes, the loss limits are the only ones that can be violated. The rest are either met or not met yet; a broken limit cannot be unbroken.

Read FTMO's list of objectives with one question in mind — what happens if this is not met — and two kinds of rule appear. The profit target and the minimum trading days are goals: until they are reached the evaluation stays open, and the document says they are not yet satisfied. Of the best day rule it says outright that exceeding it is not treated as a breach. And the two loss limits are the only ones for which the text says the rule is considered violated.

That is the asymmetry that makes drawdown the rule that matters. A profit target can be reached next week; a limit that has been crossed cannot be uncrossed. And because the check runs on equity, it can be crossed by a position that has not been closed yet and whose final result, hours later, would have been something else. The number that decides is not the one at the close: it is the one at the worst moment.

Nor does it loosen once you pass. On the account that follows the evaluation, FTMO requires "continuous compliance" with the applicable objectives, and both loss limits stay in force after the profit target has gone. Which other rules change on the way from one account to the other, and which do not, is in the difference between a challenge account and a funded account.

How to read the drawdown in any rulebook

With five questions, one per choice, and the rulebook in front of you. If the document answers none of them, that is an answer too.

Is it measured on balance, on equity, or on both? Is the reference taken on every price or at a set time, and if so which one and in which time zone? Does it start from initial capital or from the high point, and if from the high point, can it ever come down? Is the percentage taken of initial capital or of the peak? Is there a daily limit as well as an overall one, and what happens to both when a reward is paid? Five questions that either have a written answer or do not, and none of them costs anything to ask.

What this page will not do is tell you what drawdown is acceptable for you or how to trade to stay clear of the line: that would be advice, and this site does not give it. It sells software and provides technical support for that software. This is where the concept ends. FTMO's actual mechanism, with its figures and worked examples, is in what a prop firm evaluation measures.

Sources · read on 13/09/2026

Frequently asked questions

What is the difference between a drawdown and a loss?

A loss is measured against the price a trade was opened at; a drawdown is measured against the highest point the account had reached. That is why an account can be in drawdown without having lost anything relative to where it started: it only has to have come down from a high. The US CFTC rules define it that way, as the cumulative fall from a peak for as long as that peak has not been exceeded again. On a prop firm account the distinction matters because limits can be measured from initial capital or from the high point, and the same fall reads differently in each case.

Can a backtest's maximum drawdown be compared with a prop firm's limit?

Not directly, because they measure different things even though they share a name. The maximum drawdown in a backtest or a track record is a backward-looking statistic, and it depends on how often the value was taken: at each month-end it comes out equal to or smaller than at each day's close, and at each close equal to or smaller than on every price. A prop firm's limit, by contrast, is checked while the account is alive and, in FTMO's case, against equity, which includes whatever is still open. Before putting the two numbers side by side you need to know what quantity each was calculated on and how often, and for the first one that is rarely stated.

Does a trailing limit rise with profit I have not closed yet?

It depends on when and on what the reference is taken, and that is written in each rulebook rather than being a feature of trailing limits as such. On FTMO's one-step programme the reference is the highest balance recorded at 00:00 CE(S)T, and balance only changes when a trade is closed, so a floating profit does not lift the line however large it gets during the day. A limit whose reference followed equity on every price would behave differently, and a profit that appeared and then vanished would still have moved the line. That is why "trailing" on its own does not describe a limit: you also need to know what it trails and when.

Why is the limit calculated on initial capital and not on my current balance?

Because that turns the percentage into a fixed distance in money that does not depend on how the account is doing. FTMO defines the loss amount for both of its limits as a percentage of the initial simulated capital; on the trailing limit, what moves is the point that amount is subtracted from, not the amount itself. If it were calculated on the balance at each moment, the distance would grow as the account rose and shrink as it fell, which is a different rulebook altogether. That is also why two firms advertising the same percentage can leave different amounts of room.

Does the drawdown buffer come back if the account recovers?

It depends on the limit. With a static limit, yes: the line is always in the same place, so everything the account climbs back becomes room again. With a trailing limit, only up to the previous high: beyond that, whatever the account gains drags the line up with it and the distance stops growing. With a daily limit, the reference is worked out again at the start of the next session, so the day's room renews itself, but calculated from the balance at that moment rather than from where the account started.

Is drawdown calculated the same way at every prop firm?

There is no common method, which is why the same advertised percentage does not mean the same thing in two places. Every rulebook decides which quantity it measures, whether it takes the reference on every price or at a set time, whether it starts from initial capital or from the high point, whether the percentage is taken of initial capital or of the peak, and what period each limit covers. This page only describes, from its documents, what FTMO writes, and makes no claim about how any other firm calculates it. What can be checked is those five answers in the current rulebook of the firm you intend to trade with.

Before you automate, compatibility

An automated program is held to the same loss limits as a person, calculated the same way, and no configuration guarantees that an evaluation stage will be passed. What can be set out step by step is how one is installed on top of an account without breaking its rulebook, and compatibility is confirmed before anything is charged.

See how the installation works

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