What Is Trailing Drawdown In Prop Firms?

Trailing drawdown is a moving “floor” on your account. If your balance or equity falls below that floor, you fail the evaluation, even if you were previously profitable.

Basic Idea

In most futures prop firm evaluations, your account has:

• A starting balance (for example, $50,000)
• A max trailing drawdown (for example, $2,500)

The prop firm tracks your **highest profit point** and moves the drawdown level up behind it. If your balance or equity dips below that level, the account is violated.

Simple Example

Assume:

• Starting balance: $50,000
• Max trailing drawdown: $2,500
• Initial drawdown floor: $47,500 ($50,000 − $2,500)

Now walk through a few steps:

1. You make $1,000.
   Highest balance so far: $51,000
   New drawdown floor: $48,500 ($51,000 − $2,500)
2. You then lose $600.
   Balance: $50,400
   Floor stays at $48,500 (it does not move down)
3. You make another $800.
   Balance: $51,200
   New drawdown floor: $48,700 ($51,200 − $2,500)

If at any point your balance or equity drops below the current floor, you fail the evaluation.

Balance-Based vs Equity-Based Trailing

Different firms use different tracking methods:

• Balance-based trailing: The drawdown only updates when trades are closed. Unrealized P&L does not move the floor.
• Equity-based trailing: The drawdown tracks open profit as well. If you spike up then reverse while still in the trade, the floor may have already moved.

Equity-based trailing is stricter because big open profits can raise the floor, then a reversal can break the rule even if you end near breakeven.

End-of-Day Trailing vs Intraday Trailing

Some prop firms only move the drawdown at the **end of the trading day**. Others adjust it **in real time** as you trade.

• End-of-day trailing: floor updates once per day using the day’s closing balance.
• Intraday trailing: floor can move during the session as new highs are made.

Why Traders Fail Because Of Trailing Drawdown

Common reasons traders violate trailing drawdown:

• Not knowing if the firm uses balance, equity, or intraday tracking
• Letting open profit swing too high relative to their risk per trade
• Scaling up size after a good run and hitting the floor in one bad move
• Ignoring the fact that the floor keeps moving up as they make new highs

Trailing Drawdown vs Static Drawdown

Some evaluations use a static drawdown instead:

• Trailing drawdown: floor moves up as you make new highs.
• Static drawdown: floor stays in one place for the whole evaluation.

Static drawdown is simpler to track because it does not follow your equity curve.

Check The Exact Rules For Each Firm

The numbers above are examples only. Every prop firm publishes its own rules, including:

• Drawdown amount
• Whether it trails balance or equity
• Whether it stops trailing at a certain point
• When it resets or locks in

Always read the firm’s official documentation to see how their drawdown is defined and calculated.