What Is Trailing Drawdown?
A trailing drawdown is a dynamic loss limit that follows your account’s highest level as you trade. Unlike a static drawdown, which stays fixed from the starting balance, a trailing drawdown moves upward as your account grows.
This means the drawdown adjusts when your account reaches new highs, helping define the maximum loss allowed as your performance improves. However, the trailing drawdown will only move upward until it reaches the initial account balance and will not increase beyond that level. Once it reaches the initial balance, it stops trailing.
During a payout withdrawal, the trailing drawdown remains unchanged. For this reason, it is recommended to keep a buffer in your account so you retain sufficient risk capital to continue trading comfortably after the withdrawal.
Please be informed that Trailing Drawdown is only applicable to Instant Funding Challenges.
How It Works
The trailing drawdown is calculated from the highest balance or equity, whichever is higher
It moves upward as new highs are reached
It stops once it reaches the initial account balance
It never moves downward
A violation occurs if your equity drops below the trailing drawdown level
Once breached, the account remains breached
Example
Let’s say you have a $100,000 trading account with:
Trailing Drawdown: 10%
Starting Account Balance: $100,000
Step 0: Account Started
Maximum loss allowed = $100,000 - $10,000 = $90,000
Step 1: Account Grows
If you make a $5,000 profit, your account balance becomes $105,000
Maximum loss allowed = $105,000 - $10,000 = $95,000
Step 2: Account Grows More
If you then make another $10,000 profit, your account balance becomes $115,000
Maximum loss allowed = $115,000 - $10,000 = $105,000
However, the trailing drawdown cannot move above the initial account balance, so:
Maximum loss allowed = $100,000
Step 3: Account Drops
If your equity falls to $100,000, you will have reached the trailing drawdown level and the account will be breached.
Important Reminder
Before placing your first trade, it is important to understand which drawdown model your program uses. Static and trailing drawdowns behave differently, and proper risk management depends on knowing how your limits are calculated.
Trading with a clear understanding of your drawdown rules can help you avoid unnecessary breaches and manage your account in a more controlled and sustainable way.