Prop Firm Drawdown Rules Explained: Daily vs Max, Static vs Trailing
Prop Firm Drawdown Rules Explained: Daily vs Max, Static vs Trailing
Drawdown rules are the single biggest reason traders fail prop firm challenges. Not bad entries, not wrong direction — hitting the drawdown limit by misunderstanding how it works.
This guide breaks down every type of drawdown rule you'll encounter, how they differ between firms, and practical tips to stay within limits.
What Is Drawdown in Prop Trading?
Drawdown measures how much your account balance has declined from its highest point (or starting balance). Prop firms use drawdown limits to ensure traders manage risk — if you breach the limit, you lose the account.
There are two dimensions to understand:
And two calculation methods:
Daily Drawdown Limit
Most firms set a daily loss limit between 4% and 6% of your account balance.
How it works:
Common mistake: Traders calculate the daily limit from the initial balance ($100,000) rather than the current balance. If you made $4,000 yesterday, today's limit is calculated from $104,000 — giving you more room.
Important: Some firms like FTMO calculate daily drawdown from the higher of: account balance or equity at the start of the day. This means if you have $2,000 in unrealized profit at the start of the day, your daily limit is calculated from that higher equity.
Firms With No Daily Drawdown
Some firms have removed the daily drawdown entirely, leaving only the overall max limit. This gives traders much more flexibility — no need to worry about a single bad day.
Check out our comparison tool and filter by the "No Daily Drawdown" tag to find these firms.
Max (Overall) Drawdown
The overall drawdown limit typically ranges from 6% to 12% and comes in two flavors:
Static Max Drawdown
Your loss limit is fixed at a set distance from your starting balance and never moves.
Example: $100,000 account with 10% max drawdown → your absolute floor is $90,000. Even if your account grows to $115,000, the floor stays at $90,000.
Advantage: As you profit, you build a bigger cushion. A $15,000 profit means you'd need to lose $25,000 to breach.
Firms using static drawdown: Most traditional firms like FTMO, MyForexFunds, and The5ers use static max drawdown.
Trailing Max Drawdown
The floor moves up as your account reaches new highs — but never moves down.
Example: $100,000 account with 6% trailing drawdown:
The danger: With trailing drawdown, your profits don't build a cushion — the floor chases you up. A big winning streak followed by a normal pullback can breach the limit.
Important: Some firms trail the drawdown only up to the starting balance. For example, on a $100K account with 6% trailing, the floor stops trailing once it reaches $100K. After that, it behaves like a static drawdown. This is often called "trailing until breakeven" and is much more trader-friendly.
End-of-Day (EOD) vs Real-Time Trailing
Another critical distinction:
Why this matters: With real-time trailing, if your trade goes +$5,000 in profit then you close it at +$1,000, the floor already moved up by $5,000. You "lost" $4,000 of buffer from a trade you closed in profit.
EOD trailing is significantly more forgiving because only your closed daily balance counts.
How to Stay Within Drawdown Limits
1. Know Your Dollar Limit
Before placing any trade, calculate the exact dollar amount between your current equity and the drawdown floor:
Buffer = Current Equity − Drawdown Floor
This is your real risk budget. Not a percentage — a dollar figure.
2. Risk 1–2% Per Trade Max
If your buffer is $6,000, risking $3,000 on a single trade means one loss puts you at 50% of your buffer. Two losses and you're done.
Keep individual trade risk at 1-2% of the account ($1,000-$2,000 on a $100K account).
3. Be Extra Careful After Winning Streaks
With trailing drawdown, a big run-up tightens your effective buffer. After hitting new highs, consider reducing position size until you've built a comfortable gap between equity and the floor.
4. Track Drawdown in Real Time
Don't rely on mental math. Use a spreadsheet or position sizing calculator. Our Prop Firm Calculator can help you plan your risk.
5. Avoid Correlated Positions
Two EUR/USD longs and a GBP/USD long aren't three separate trades — they're essentially one big dollar-short bet. Correlated positions multiply your effective risk.
Quick Comparison of Drawdown Types
| Drawdown Type | Risk Level | Best For |
|---|---|---|
| Static Max, No Daily | Low | Swing traders, news traders |
| Static Max + Daily Limit | Medium | Most traders |
| Trailing (EOD) + Daily | Medium-High | Disciplined day traders |
| Trailing (Real-Time) + Daily | High | Very conservative scalpers |
Finding the Right Drawdown Rules for You
Your trading style should dictate which drawdown rules work for you:
Use the Flux Trading comparison tool to filter firms by drawdown type and find the rules that match your style. You can also check our Quiz to get personalized recommendations.
Bottom Line
Drawdown rules aren't there to stop you from trading — they're there to stop you from blowing up. Understanding the difference between static and trailing, daily and overall, can be the difference between passing and failing your challenge.
Before you buy any challenge, check the drawdown rules first. It's the most important factor in your success.