Understanding Drawdown Rules
Drawdown rules are the most critical factor in prop firm evaluations. They determine how much you can lose before your account is terminated. Understanding the differences between drawdown types is essential for choosing the right firm.
Static Drawdown
Static drawdown is calculated from your initial account balance. If your account starts at $100,000 with a 10% max drawdown, your account is terminated if your equity drops below $90,000 at any point.
Firms Using Static Drawdown:
- FTMO (10% max, 5% daily)
- MyForexFunds (12% max, 5% daily) — shut down
Trailing Drawdown
Trailing drawdown moves with your highest equity point. If your account reaches $105,000, your new minimum becomes $105,000 minus the drawdown percentage. This means your cushion increases as you make profits.
Firms Using Trailing Drawdown:
- Apex Trader Funding (6% trailing)
- TopStep (4.5% trailing)
Which Is Better?
Static drawdown is generally more favorable for traders because the maximum loss level never moves against you. Trailing drawdown requires more careful profit management but can offer higher profit potential due to typically higher allowed drawdown percentages.