In the prop trading space, the Maximum Overall Drawdown means the most you can lose before your account is breached. It’s usually calculated as a percentage of your starting balance. Now, here’s the thing: drawdown can be either static or trailing—and understanding the difference can seriously impact your trading strategy.
Even-though they are standardly calculated from your initial balance, both static and trailing drawdowns monitor your equity, meaning even your open trades count.
The difference? It’s all about what happens when you start making profits.
Let’s break it down, using the example of account with initial balance $100,000 and the maximum drawdown set at 10% —that’s $10,000.
Static Drawdown - Never Moves
With a static drawdown, your limit stays exactly where it was set at $90,000—it doesn’t move, no matter how much you profit.
So, let’s say you start trading, and your equity grows to $105,000. Your maximum overall drawdown stays at $90,000. That means you now have $15,000 of breathing room before hitting your limit.
Drop to $102,000? No problem—you still have $12,000 left to risk. The key here? You always know your hard breach level—it never moves.
This makes static drawdown easy to understand, predictable, and trader friendly.
Trailing Drawdown – A Moving Target
Now, let’s look at trailing drawdown—this one adjusts as you profit, but never moves lower when you take losses.
At the start, it works just like static: max drawdown is set to $10,000. But the moment you make for example $5,000 in profit, pushing your equity to $105,000 (High-water Mark on equity), the drawdown trails up to $95,000 (calculated as high-water mark minus the maximum drawdown).
So now, instead of having a $15,000 cushion, you can only afford to lose $10,000 before breaching.
And here’s the kicker—if your equity drops back down to $102,000, the drawdown stays at unchanged at $95,000. Meaning? Now you can only lose $7,000 before your account is in trouble.
Trailing drawdown locks in your gains, but it also tightens your risk, making it harder to manage trades as your account grows.
So, Which One is Better?
If you want more flexibility and control, static drawdown is the smarter choice.
✅ It gives you a fixed risk limit—no surprises.
✅ You get more room to manage trades and market fluctuations.
Trailing drawdown, on the other hand? It’s restrictive. As you profit, your risk limit tightens, leaving you less room to manoeuvre.