What is maximum drawdown?

How do you calculate maximum drawdown?

Divide the fall by the peak it fell from, maximum drawdown = (peak − low) ÷ peak, and take the worst such fall in the period. An account that goes from $10,000 to $12,500, drops to $10,625 and then climbs to $13,000 has a maximum drawdown of $1,875 ÷ $12,500 = 15%, although it finished 30% up. MetaTrader 5's strategy test report gives it two ways: in money, as the "difference in deposit currency between the highest local equity value and the next lowest equity value", and in percentage terms. The two can come from different falls, because the largest fall in dollars is not always the largest in percent.

What is max drawdown in a prop firm?

It is the firm's maximum loss limit: the most the account may fall before it is closed. It is either static, fixed below the starting balance, or trailing, rising with your highs. FTMO's 2-Step limit is static: on $100,000, equity must stay above $90,000. Firms measure it on equity, so open losses count. How the moving version works is on the trailing drawdown page.

Why is a backtest's maximum drawdown a floor, not a ceiling?

Because it describes the worst thing that happened in one sample, and another run of the same kind of trades can produce a worse one. A backtest over a year that shows 20% says 20% was enough to contain that year. That is why the figure belongs next to its period, its trade count and a test on data the strategy never saw. Ours, measured at a flat 0.05 lot on a $1,000 account, are 27.4% from January to August 2026, over 42 trades, and 13.2% on unseen data from August to December 2025. Both samples are small, so neither figure is precise.

Maximum loss limits by firm

From each firm's own rules pages, read in September 2026, for a $100,000 account.

How much does it take to recover from a drawdown?

More than the fall, because the gain is measured from a smaller base. A fall of d needs a gain of d ÷ (1 − d) to get back to the peak.

Daily drawdown vs max drawdown

The daily limit caps the loss within one trading day and resets every day; the maximum loss caps the total and never resets. One bad day meets the daily limit first; a run of losing days meets the maximum. The full comparison is on the daily drawdown page, and what counts as an acceptable maximum drawdown for your own account is answered in what is a good maximum drawdown.

Every fall of 20% or more in the gold price since 1971, with how long each took to recover, is in gold price history.