Maximum Drawdown
Your absolute safety net, or a trap, depending on how the firm calculates it.
What it is
The maximum drawdown is the total amount your account can decline from its starting balance (or high-water mark) before the account is terminated. A 10% max drawdown on a $100,000 account means violation at $90,000.
Static vs. trailing
This is the critical distinction:
- Static: The floor never moves. $100k account with 10% static = your floor is always $90,000, regardless of how high your account grows. Trader-friendly.
- Trailing: The floor moves up with your high-water mark. See Trailing Drawdown for the full breakdown.
A firm advertising "10% drawdown" without specifying static or trailing is being deliberately vague. Always check the terms.
Reality check: A 10% max drawdown sounds generous until you realize that most professional fund managers consider a 10% drawdown a serious event. In prop firm world, you're expected to generate 8-10% profit while never exceeding 10% loss, that's an extremely tight risk/reward box.