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Maximum Overall Drawdown Rules and Guidelines

Maximum Overall Drawdown rules on 1-step and 2-step accounts.

Shanice avatar
Written by Shanice
Updated over 7 months ago

Maximum Overall Drawdown: 1-Step Account

  • Initial Setup: The Maximum Trailing Drawdown is set at 6% of your starting balance. It is calculated based on the closed balance (not equity) and trails your account until you achieve a 6% return.

  • Lock-in Point: Once you reach a 6% return, the drawdown stops trailing and is permanently locked at your starting balance.

Example:

  • Starting Balance: $100,000

  • Maximum Trailing Drawdown: $94,000 (6% below starting balance).

Scenario 1:

  • You grow your account to $102,000 in closed balance (new high-water mark).

  • Your Maximum Trailing Drawdown is now $96,000 (6% below $102,000).

Scenario 2:

  • You grow your account to $106,000 in closed balance.

  • The drawdown locks at your starting balance of $100,000 (since you’ve achieved a 6% return).

  • From here on: You would only breach this rule if your account closed balance falls back to $100,000. However, the daily drawdown rule still applies.

For instance: If your account reaches $170,000, you won’t breach the overall drawdown as long as your closed balance doesn’t fall to $100,000. However, ensure you don’t exceed the 5% daily drawdown limit.

Maximum Overall Drawdown: 2-Step Account

  • Setup: The Maximum Drawdown is fixed at 8% of your starting balance and does not trail or adjust with account performance.

Example:

  • Starting Balance: $100,000

  • Maximum Drawdown: $92,000 (8% below starting balance).

This limit remains static throughout the account's lifetime, and exceeding it will result in a breach.

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