What is the maximum drawdown rule and how does it work?
The maximum drawdown rule defines the total loss limit allowed across the lifetime of the account. This is either static (measured from initial balance) or trailing (follows equity highs). Most firms set this at 8–10%.
What is the maximum drawdown rule and how does it work?
The maximum drawdown rule defines the total loss limit allowed across the lifetime of the account. This is either static (measured from initial balance) or trailing (follows equity highs). Most firms set this at 8–10%.
Key Points
- Usually set at 8–10% of account balance
- Static drawdown = measured from original starting balance
- Trailing drawdown = adjusts upward as profits grow
- Breaching maximum drawdown ends the account permanently
- Some firms use end-of-day equity, others use real-time equity
Firm Comparison
| Firm | Policy | Threshold | Consequence |
|---|---|---|---|
| FTMO | Max Loss | 10% of initial balance | Account terminated |
| FXIFY | Max Drawdown | 8% of account balance | Account closed |
| FundingPips | Max Drawdown | 10% of account balance | Challenge/funded breach |
| BrightFunded | Max Loss | 8% of balance | Account terminated |
| The5ers | Max Drawdown | 6% of initial balance | Account closed |
| E8 Markets | Max Drawdown | 8% of balance | Immediate breach |
| FundedNext | Max Drawdown | 10% of starting balance | Termination |
| Think Capital | Max Loss | 10% of balance | Account closed |
Frequently Asked Questions
What is the maximum drawdown rule?
It limits the total cumulative loss allowed on your account from the starting balance, typically 8–10%.
Is maximum drawdown calculated from the starting or peak balance?
Most firms use starting balance; some use peak equity (trailing max drawdown).
Can I recover from a maximum drawdown breach?
No — once breached, the account is immediately terminated.
How is max drawdown different from daily drawdown?
Daily drawdown is the per-day loss limit; max drawdown is the total loss limit across all time.