Trailing Drawdown in Prop Trading: How It Works and When It’s the Right Fit
7 min read
- December 03, 2025
Trailing drawdown is one of the core risk models used in the prop trading industry. While often misunderstood by beginners, it plays an important role in helping traders follow disciplined risk management and maintain consistent equity growth.
At thePropTrade, trailing drawdown is used on our Edge accounts and Instant Funding accounts — two programs designed for traders who prefer tighter risk parameters, lower entry costs, and high evaluation efficiency.
This article explains exactly how trailing drawdown works, why some traders choose it, and how it differs from static drawdown.
What Is Trailing Drawdown?
Trailing drawdown (also known as dynamic drawdown) is a type of maximum loss limit that moves upward as your account grows. When your equity reaches a new peak, the drawdown level “trails” behind it by a set amount.
This means:
- As you make profits → the drawdown level adjusts upward
- As you take losses → the drawdown does not move back down
The result is a risk model that encourages consistent performance and controlled pullbacks.
Equity vs. Balance With Trailing Drawdown
In most prop firm setups, trailing drawdown trails with the highest equity.
At thePropTrade’s Edge and Instant Funding accounts, the trailing drowdown trails with the highest balance ( High Watermark Balance)
For us it means that your closed losses/profits, trading commissions and swaps are all included when determining your drawdown level.
How Trailing Drawdown Is Calculated
Trailing drawdown is usually defined as a specific percentage or dollar amount below your highest point. Since at thePropTrade’s Edge and Instant Funding accounts the drawdown trails your High Watermark Balance, we will use this structure for our example.
Example Calculation
Starting Balance: $100,000
Trailing Drawdown Limit: $6,000
Initial Breach Level: $94,000
If your balance rises to $103,000, the new trailing level becomes:
$103,000 − $6,000 = $97,000
Trailing Lock
With Trailing Lock, once your balance reaches the initial balance plus the value of the trailing drawdown, the drawdown level locks at the initial balance and no longer trails upward.
Using the same example:
If your balance hits $106,000, the new trailing level becomes $100,000.
If the balance later increases to $108,000, your drawdown level still remains locked at $100,000.
Once the trailing level rises, it never moves back down, even if the balance later drops.
Important Note About Monitoring
Even though trailing drawdown is calculated using your High Watermark Balance, its monitoring is based on all your trading activity, including:
Open P/L
Closed P/L
Commissions
Swaps
This means that if your drawdown level is currently $94,000, and your balance or equity drops to this point, the account becomes hard breached.
Key Characteristics of Trailing Drawdown
- The drawdown level moves upward as equity/balance makes new highs
- It never trails back down after losses
- Encourages consistent equity growth
- Designed for traders who prefer tighter parameters
- Requires closer monitoring of floating P/L
Unlike static drawdown, which creates a fixed loss limit, trailing drawdown adjusts dynamically in real time.
Trailing Drawdown Example in Practice
Let’s look at a simple example of how Trailing Drawdown with Trailing Lock works in real conditions.
Initial Account Size: $100,000
Trailing Drawdown Limit: $6,000 (6%)
Initial Breach Level: $94,000
1. Balance increases
Your balance rises to $104,000.
The new trailing drawdown level becomes:
$104,000 − $6,000 = $98,000
2. Balance reaches the Trailing Lock point
If your balance reaches $106,000, the trailing level will lock at $100,000 (your initial balance).
Even if your balance rises further, for example to $108,000, the drawdown level stays locked at $100,000 and does not trail up anymore.
3. Drawdown breach scenario
If later your equity dips to $97,500, a breach occurs because equity has fallen below the trailing threshold (which was $98,000 before lock, or $100,000 after lock depending on the scenario).
This can happen even if your account is overall profitable, as trailing drawdown is monitored based on both balance and equity, including open P/L, commissions, and swaps.
Why Some Traders Prefer Trailing Drawdown
Although trailing drawdown requires more active risk management, it offers several advantages depending on your style and goals.
Encourages Consistency
Trailing drawdown rewards traders who steadily build equity and maintain controlled pullbacks.
Ideal for High-Efficiency Evaluations
Programs like Edge and Instant Funding use trailing drawdown to offer:
- Lower entry fees
- Faster verification
- Higher turnover of funded accounts
This risk model supports quicker, more efficient assessments.
Works Well for Low-Drawdown Strategies
Trailing drawdown complements strategies that naturally maintain:
- Small floating losses
- Tight stop-losses
- Short holding periods
- High accuracy or low-RR entries.
Excellent for Intraday & Precision Traders
Scalpers and day traders who keep trades tight often find trailing drawdown easy to work with.
Static Drawdown vs. Trailing Drawdown (Quick Comparison)
Both drawdown types serve different purposes, and neither is “better”, they simply suit different trading styles.
Static Drawdown
- Fixed from the start
- Does not move with profits
- More freedom for swing & medium-term strategies
- Used in thePropTrade’s Classic programs
Trailing Drawdown
- Moves upward with equity / balance
- Rewards consistent growth
- Best for low-drawdown strategies
- Used in Edge and Instant Funding programs
If you want to learn more about how trailing drawdown works , including examples and common pitfalls, you can read our article: Static vs. Trailing Maximum Drawdown