Trailing drawdown
A drawdown rule whose threshold moves up with every new equity high during the session, locking traders out of giving back winners.
Trailing drawdown is a prop-firm account rule in which the maximum allowable loss is measured against the highest equity (or balance) the account has reached, not the starting balance. The threshold ratchets up as the account makes new highs and never moves back down — until it locks at the initial balance once a defined milestone is reached.
Trailing drawdown is the most common reason funded futures accounts get blown. New prop traders watch their daily P&L without realizing that a winning trade can move the trailing line up by the same amount, leaving them just as exposed to a single round-trip as before the win.
Examples
- Start: $50,000 balance, $2,000 trailing drawdown → threshold at $48,000.
- Take a +$1,800 unrealized trade. New high: $51,800. New threshold: $49,800.
- Give the whole profit back to close at $50,000. You're now $200 above threshold — one bad trade from a hard breach, even though P&L for the day is zero.
Related terms
- End-of-day drawdown
A drawdown rule calculated once per day on your closing balance — intraday volatility doesn't count.
- Daily loss limit
The maximum dollar amount you can lose in a single trading day before the account is breached.
- Drawdown buffer (safety buffer)
A self-imposed limit inside the firm's actual limit — your guardrail before the firm's guardrail.