Definition
What is Drawdown?
Drawdown is the decline of an account from its highest value to a later low, usually shown in dollars or as a percentage of the peak.
Every trader has drawdowns: a series of losing trades, a bad week or a position that moves against you before it recovers. Drawdown measures how deep that dip goes from the last high point of your equity or balance.
It is expressed in two ways. Absolute drawdown is the dollar amount lost from the peak; relative drawdown divides that amount by the peak to get a percentage. A 10% drawdown on a $100,000 account means equity fell to $90,000 at some point after being at $100,000.
Drawdown matters more than most beginners think, because recovering from it is not symmetrical: after a 10% loss you need about 11% to get back to the peak, after 20% you need 25%, and after 50% you need 100%.
The best protection is small, fixed risk per trade and a personal daily stop, so a normal losing streak only produces a shallow drawdown.
Example
Your $100,000 account grows to $106,000, then a losing week takes equity down to $101,000. The drawdown from the peak is $5,000, or about 4.7% of $106,000.
At a prop firm
Prop firms cap drawdown with two limits. At Axora Funded the 2-Step allows a 4% daily loss and an 8% static maximum loss; the 1-Step allows 3% daily and a 6% trailing maximum loss.
Frequently asked questions
Is drawdown measured on balance or equity?
Most prop firms, including Axora Funded, check loss limits on equity, which includes open profit and loss in real time.
What is a good maximum drawdown?
It depends on the strategy, but professional traders usually aim to keep drawdowns well under 10% by risking 0.5–1% per trade.