What Is Trailing Drawdown? — Prop Firm Rules Explained
Understand how trailing drawdown works in prop trading. How it differs from static drawdown, and why it matters for your risk management.
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What Is Trailing Drawdown?
Trailing drawdown is a risk management mechanism used by prop firms where your maximum loss threshold moves up with your highest equity point but never moves back down.
How Trailing Drawdown Works
Example: With a $100K account and 6% trailing drawdown ($6K), your initial floor is $94K. If your equity reaches $105K, the floor moves to $99K. It never goes back down even if your balance drops.
Trailing vs Static vs EOD
Static drawdown stays fixed at the initial level. EOD (end-of-day) trailing only recalculates at market close. Real-time trailing adjusts tick-by-tick. Each model has different implications for your trading strategy.
Frequently Asked Questions
What is trailing drawdown in prop trading?
Trailing drawdown moves up with your highest equity point but never moves down, creating a 'trailing' stop on your account that can result in account breach if you give back gains.
Is trailing or static drawdown better?
Static drawdown is generally more forgiving as it doesn't chase your equity higher. Trailing drawdown requires more careful position management.