Trailing drawdown explained
A trailing drawdown is a maximum-loss floor that follows your highest equity upward and never moves down. It is common at futures prop firms and in some forex programs, and it is the drawdown type that surprises traders most.
With a $5,000 trailing drawdown on a $100,000 account, the floor starts at $95,000. If equity reaches $103,000, even briefly in an open trade, the floor moves to $98,000. Give the profit back and you are much closer to a breach than the balance suggests. Many firms stop trailing once the floor reaches the starting balance.
Example: open profit that raises the floor
You buy and the trade runs $3,000 into profit; equity peaks at $103,000 and the floor follows to $98,000. The trade then reverses to breakeven. Your balance is $100,000 again, but your room is only $2,000, not $5,000. A real-time trailing drawdown counts the peak of open profit; an end-of-day version would only have moved on the close.
Max drawdown: static vs trailing
Tap your account and the max loss, then slide to the highest your equity has reached. Compare where the floor sits under each type.
Account size
Max loss
Highest equity so far
Trading with a trailing drawdown
- Take partial profit or move the stop to entry earlier; open profit you give back costs room.
- Size smaller at the start, before the floor locks at the starting balance.
- Prefer end-of-day trailing or static programs if your trades swing widely.
More: prop firm drawdown rules explained and the trailing drawdown survival guide.
FAQ
How does a trailing drawdown work?
The floor is set at your highest equity minus the allowance and moves up with every new high, never down.
Does trailing drawdown count unrealized profit?
A real-time trailing drawdown does; an end-of-day trailing drawdown only uses the daily close.
When does a trailing drawdown stop trailing?
At many firms when the floor reaches the starting balance; it then stays there.