Drawdown in Funded Trader Programs Explained
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Last Updated:May 27, 2022
Drawdown Explained
Drawdown is one of the key parameters in defining goals of trader evaluations on the path to becoming funded with a funding program or a prop firm.
The traditional definition of drawdown - is peak to trough decline of an investment. In the case of funded trader programs drawdown applies to the virtual account balance of trader evaluations.
Simple? Not so fast. There are several types of drawdown that severely affect the value and difficulty of funded trader programs.
It is critical to note, that less trader friendly drawdowns will almost always be cheaper due to higher difficulty in passing those evaluations. We will break down why $2500 in drawdown costing $299 might be much better value than $2500 in drawdown costing $70. Let’s dig in
Drawdown Types in Funded Trader Programs
Let’s rank drawdowns by type by trader friendliness or ease in passing evaluations with the drawdown types
Best: Static Drawdown
Characteristics: Drawdown never moves
Our Favorite Programs with Static Drawdown: True Forex Funds(True Forex Site, True Forex Breakdown), E8 Trader Funding(E8 Programs, E8 review), The Funded Trader(The Funded Site, TFT Review)
Great: EOD Drawdown
Characteristics: Drawdown is only trailed up if a new account high is made at the end of the session.
Our Favorite EOD Drawdown Programs: UProfit (Uprofit Programs with our 30% discount, Uprofit Review), Gauntlet Mini (Earn2Trader Gauntlet Mini Evaluations, Gauntlet Mini Career Path, Gauntlet Review), Bulenox(Bulenox Review and discount codes)
Good: Trailing top of Equity
Characteristics: If upon conclusion of the trader new account balance high is set, drawdown trails up
Our Favorite Programs for this type of drawdown: Funded Trading Plus(1 step 0 day program, FT+ Review), Savius Futures and Forex Programs(Savius Limitless Futures, Savius Limitless Forex, Savius Review and Discount Codes)
OK: Live Trailing Drawdown
Characteristics: Drawdown trails up anytime new account balance high including open positions is made.
Our Favorite Programs with Live Trailing Drawdown: Elite Trader Funding (Elite Trader Funding Review and discount codes), Apex Trader Funding(Apex Review and 50% off discount code), Leeloo Trader Funding(Leeloo trader funding, Leeloo Review)
What else do you need to know about drawdowns?
Touching the drawdown line will fail your trader evaluation or terminate live account in most programs. Try to stay above the line, allowing some room for slippage and commissions.
Besides the calculation type difference. Some programs may have Daily and Weekly drawdown figures. Traders who are trying to work on discipline and improve risk management might like a program with a daily drawdown figure. Aggressive traders might prefer programs with only a single max loss figure.
Let's dig into individual drawdown types and explain what traders will benefit most from each format.
Live Trailing Drawdown
Drawdown never stops trailing the highest reached balance, including open profit and loss.
Example using 50,000 initial balance accounts with $3,000 drawdown.
Account is created with $50,000 drawdown, trailing liquidation threshold or failure point for the account is at $47,000.
The trader puts on a trade and exits using a limit order for a profit of $500. Account balance goes to $50,500, liquidation level now moves up to $47,500.
Trader enters another trade. Trade open profit is $1000, no matter the exit point, the trailing drawdown will trail up by $1,000 to $48,500. If trade comes back and stops out the trader for breakeven trade. Drawdown remains at $48,500 with the account balance at $50,500. So without losing money on the trade. The evaluation account now has $1,000 less in available drawdown.
Using limit orders as profit targets and aggressively trailing profitable positions are some of the ways to minimize the loss of drawdown. Scalpers, traders who take profits with limit orders and traders who’s system calls for multiple entries and exits of a position will maximize the value offered by Live Trailing Drawdown Programs.
Due to the increased difficulty of live trailing drawdown programs they are priced at low amount of evaluation fee per available drawdown. On our specials page, you can find programs with over 30x in drawdown per fee paid.
EOD Drawdown
A very trader-friendly drawdown. Drawdown line only moves up at the End of the day if a new account balance high is made. What happens during the day does not affect the drawdown, unless of course it is violated. In that case, the account would be terminated and require a reset or restart.
Example using 50,000 account balance with $2,000 overall drawdown with liquidation threshold $48,000. Scenarios:
Trader makes $2000 in profits by the end of the day - drawdown trails up by $2,000 to $50,000
The trader has realized a profit of $1500 during the day, and then give is up later in the day. Drawdown stays at $48,000 (big advantage over live trailing which would have moved up all the way to $49,500)
Liquidation level usually stops trailing once initial balance is reached.
EOD drawdown is the best type of drawdown available in futures funded trader programs. There is one program - Earn2Trade Career Path program that goes to Static Drawdown upon unlocking the final step of “Career Path”. Static Drawdown is very common in Best Forex Funded Trader Programs
Trailing Top of Equity Drawdown
Common in traditional prop firm evaluations in assessing trader risk management abilities. In online prop firm trading, it is common in both Futures and Forex evaluations.
Superior to live trailing drawdown, and generally allows traders to attempt evaluations at lower cost vs Static and EOD drawdown evaluations.
Drawdown only trails up if closed trade makes new account high. The open trade balance does not trail up the trailing drawdown.
Examples using $50,000 account with $2,000 drawdown or $48,000 liquidation threshold
- Trader opens a trade that goes up 1000 and stops out for break even. The liquidation threshold remains $48,000
- Traders opens a trade that goes up $1000 and stops out for $500 profit - liquidation threshold goes up to $48,500
- Traders opens a trade that is closed for $1000 profit - liquidation threshold goes up to $49,000
- Trader loses $500 on a trade - The threshold stays at $48,000
Examples of programs who use this agressive drawdown to offer low cost opportunity at great funding opportunities:
Savius - best profit target to drawdown ratio in the industry, refundable fee, salary opportunity, more drawdown added as you advance through career path
Funded Trading Plus - industry unique 0 day 1 step trader evaluation with no minimum days to payout, and a refundable fee
Fidelcrest - Earn up to $50,000 commission just for completing evaluation, before even being funded with the prop firm.
Static Drawdown
Best drawdown in the prop firm and funded trader industry. By far.
The drawdown never moves.
Example: 250,000k account with 10% drawdown. Account liquidation threshold remains at $225,00 for the whole duration of the evaluation.
That’s it, it’s that simple and amazing. No matter how you trade, a string of losers or winners. It remains the same static level.
Important to note, that static drawdown programs often have daily drawdown figures too.
For example, $250,000 accounts with 10% overall static drawdown, might have 5% daily drawdown figure. Be very mindful to not violate the daily drawdown and sabotage the amazing overall static drawdown.
Important to note: the ability to trade with such a generous drawdown and its calculation. Evaluations are priced higher per equivalent drawdown size. These programs also do not offer resets like the low-cost futures programs. In our funded trader program ranking when you see $299 program ranked higher than $100 program with the same $50,000 initial virtual balance. It is for a reason taking drawdown amount, drawdown type, and perks calculations in mind.