Drawdown is the rule that ends most prop firm accounts. It is the maximum amount your account is allowed to lose, measured from a reference point. Two firms can both advertise a "$3,000 drawdown" on a $50,000 account and give you completely different room to trade, because the reference point moves differently.
Daily loss limit vs maximum drawdown
Most firms use two limits at once. The daily loss limit caps how much you can lose in one trading day, usually measured from the day's starting balance or equity. The maximum drawdown caps your total loss over the life of the account. Breaking either one usually breaches the account, although some futures firms only stop you for the rest of the session when you hit the daily limit.
Static drawdown
A static drawdown is fixed at a level below your starting balance and never moves. On a $100,000 account with a 10% static limit, the floor is $90,000 forever. If you grow the account to $108,000, you have $18,000 of room. This is the most forgiving model, and it is common on forex/CFD two-step challenges.
Trailing drawdown (intraday)
An intraday trailing drawdown follows your highest equity in real time, including unrealized profit. Example on a $50,000 account with a $2,500 trailing limit: the floor starts at $47,500. A trade runs to +$1,500 unrealized, so the floor moves to $49,000, even if you then close the trade at breakeven. You now have $1,000 of room instead of $2,500, without having banked a cent. This is the strictest model and is common on futures and instant-funding accounts.
- Equity
- Static floor stays at $47,500 → $2,500 room
- Trailing floor moves to $49,000 → $1,000 room
End-of-day (EOD) trailing drawdown
An end-of-day trailing drawdown only moves when the trading day closes, based on your closing balance. Intraday swings in open profit do not raise the floor, which makes it much easier to manage than intraday trailing. Note the detail many traders miss: the floor only moves at the close, but a breach is often still checked in real time. Topstep, for example, trails its Maximum Loss Limit from the end-of-day balance while monitoring it live, unrealized losses included.
When the trailing stops: the lock
Most trailing models stop trailing at some point, usually when the floor reaches the starting balance (or starting balance plus a small buffer). From then on the limit behaves like a static one. This is why the first days of a trailing account are the most dangerous: build the buffer to the lock level before taking larger positions.
Balance-based vs equity-based limits
A balance-based limit only counts closed trades. An equity-based limit counts open positions too, so a floating loss can breach the account even if you would have closed the trade in profit later. Most modern firms measure breaches on equity. Read the definition in the terms, not the summary table.
How to choose
Match the drawdown model to how your trades behave:
- Trades that often go well into profit before coming back: avoid intraday trailing, prefer static or EOD.
- Small, frequent scalps with tight stops: a trailing limit is manageable if the lock level is reachable quickly.
- Swing trades with wide stops: you need a static limit and room larger than your typical open loss.
- Always size positions from the remaining room to the floor, not from the advertised account size.
