Prop firm drawdown rules explained, with worked examples

Every prop firm account has a floor. If your account touches it, the account is closed. The floor is set by the drawdown rules, and two accounts with the same “10% maximum loss” can give you very different amounts of room depending on how that 10% is measured.

This guide explains the five common drawdown models and the main ways of measuring a daily loss limit, with worked examples on a $100,000 account. All examples use round, illustrative numbers. Always check the exact wording in your own firm’s rules.

The two limits

Most accounts have two separate limits:

• Maximum loss, also called maximum drawdown or overall loss. The lowest your account may ever fall. It is usually expressed as a percentage of the starting balance, so 10% on $100,000 is $10,000.
• Daily loss limit. The most you may lose within one trading day, measured from a reference point that resets each day.

Both are usually checked against equity, meaning your balance plus or minus the profit or loss on open positions. A trade that is $3,000 down but still open counts as a $3,000 loss for this purpose. If either floor is touched, the account is normally breached at that moment, even if the trade would later have recovered.

The maximum loss can be calculated in five common ways.

Static drawdown

The floor is fixed below the starting balance and never moves.

Example. $100,000 account with a 10% static maximum loss. The floor is $90,000.

• After a $7,000 profit, equity is $107,000. The floor is still $90,000, so you have $17,000 of room.
• After a $4,000 loss instead, equity is $96,000 and your room is $6,000.

Static drawdown is the simplest model and gives the most room once you are in profit, because gains add to the cushion. It is standard on most forex two-step challenges. FTMO’s 2-Step, for example, states that equity may never drop below 90% of the initial balance; see the FTMO profile. Programs using this model are collected on the static drawdown list.

Balance-based trailing drawdown

The floor follows the highest closed balance upward and keeps the same distance below it. Open profit does not move it, and it never moves down.

Example. $100,000 account with a 6% ($6,000) trailing maximum loss based on balance. The floor starts at $94,000.

• You close trades for a total profit of $3,000. The balance is $103,000, so the floor moves up to $97,000.
• You open a trade that shows $2,000 of open profit. Equity is $105,000, but the balance has not changed, so the floor stays at $97,000.
• The trade reverses and you close it for a $1,000 loss. The balance is $102,000 and the floor stays at $97,000, so your room is now $5,000 rather than the $6,000 you started with.

Many firms stop the trailing once the floor reaches the starting balance. In this example, once the closed balance reaches $106,000 the floor locks at $100,000 and behaves like a static floor from then on.

Equity-based trailing drawdown

The floor follows the highest equity reached, including open profit, at every moment.

Example. $100,000 account with a 5% ($5,000) trailing maximum loss based on equity. The floor starts at $95,000.

• You open a trade that rises to $3,000 of open profit. Equity peaks at $103,000, and the floor moves to $98,000 straight away.
• The trade falls back and you close it for a $500 profit. The balance is $100,500, but the floor is still $98,000. Your room is $2,500.

You made money and still lost half of your room. That is the defining feature of equity trailing: open profit you give back costs you drawdown. It weighs heavily on strategies that let winners run and then retrace, and it is easier to live with if you take profit in stages or trade with close targets.

End-of-day trailing drawdown

The floor is recalculated once a day from the closing balance and does not move during the session. This model is common in futures programs. Note that the floor is fixed overnight, but equity is still checked against it in real time during the next session.

Example. $100,000 account with a $3,000 end-of-day trailing maximum loss. The floor starts at $97,000.

• Day 1: equity reaches $102,500 during the session, and the day closes with a balance of $101,200. The intraday high is ignored. The floor for day 2 becomes $98,200.
• Day 2: equity dips to $98,600 during the session. That is above the floor, so the account survives, and the day closes at $99,800. The floor stays at $98,200, because it never moves down.
• Had equity touched $98,200 at any moment on day 2, the account would have been breached, even if the day had closed higher.

Topstep’s Trading Combine works this way: the maximum loss limit trails the end-of-day balance high, is enforced in real time on open profit and loss, and locks once it reaches the starting balance. On its $100,000 Combine the limit is 3%, or $3,000. See the Topstep profile and the list of end-of-day drawdown programs.

Intraday trailing drawdown

The floor follows the highest account value reached during the session, including open profit, in real time. The label is mostly used by futures firms, and the model works much like equity trailing in forex.

Example. $100,000 account with a $3,000 intraday trailing maximum loss. The floor starts at $97,000.

• You buy, and the position shows $2,500 of open profit. The account value peaks at $102,500, and the floor moves to $99,500.
• The market reverses and you exit with a $500 profit. The balance is $100,500. The floor stays at $99,500, so you have $1,000 of room left.

Under an end-of-day model, the same day would have moved the floor only to $97,500, based on the $100,500 close, leaving $3,000 of room. That gap is why, in our data, firms that sell both versions of an evaluation usually price the intraday one lower.

The same day under each model

To compare the models directly, take one trading day on a $100,000 account with a $6,000 maximum loss under every model:

• Morning: a trade shows up to $3,500 of open profit and is closed for a $3,000 profit. The balance is $103,000.
• Afternoon: a second trade is closed for a $2,000 loss. The balance at the close is $101,000.

Model	What moved the floor	Floor after the day	Room at the close
Static	Nothing	$94,000	$7,000
Balance trailing	Highest closed balance ($103,000)	$97,000	$4,000
Equity trailing	Highest equity ($103,500)	$97,500	$3,500
End-of-day trailing	Closing balance ($101,000)	$95,000	$6,000
Intraday trailing	Highest account value ($103,500)	$97,500	$3,500

Same trades, same profit, and the room left at the close ranges from $3,500 to $7,000.

When trailing stops

Most trailing models stop moving at some point, and the lock rule matters as much as the trail itself:

• Lock at the starting balance. Once the floor reaches $100,000 it stops, and you have a static floor at breakeven.
• Lock at the starting balance plus a small amount, such as $100, which is common on futures funded accounts.
• Lock after the first payout, at some firms.
• No lock. Some trailing limits keep moving for the life of the account or the evaluation.

Withdrawals matter too. If the floor has locked at $100,000 and you withdraw everything above it, your room falls to zero. Some firms require a buffer to stay in the account for this reason, and others reset the floor after a payout.

Daily loss: measured from balance or from equity

The daily loss limit has its own reference point, which resets at a set time each day, such as server midnight, a fixed UTC time or the futures session close. What matters is what that reference point is.

From the day’s starting balance

The daily floor is the balance at the reset minus the daily limit. Open positions carried over the reset are ignored when the floor is set, but their losses still count against it once the day begins.

Example. A 5% daily limit on $100,000, so $5,000. At the reset your balance is $102,000 and an open trade is $1,500 down, so equity is $100,500.

• Daily floor: $102,000 minus $5,000, which is $97,000.
• Room for the day, measured from current equity: $3,500, because the open trade has already used $1,500 of the limit.

FTMO’s 2-Step uses this form: the daily floor is the balance at midnight CE(S)T minus 5% of the initial balance.

From the higher of balance or equity

The daily floor is set from whichever was higher at the reset, the balance or the equity.

Example. A 4% daily limit on $100,000, so $4,000. At the reset your balance is $100,000 and an open trade is $2,500 in profit, so equity is $102,500.

• Daily floor: $102,500 minus $4,000, which is $98,500.
• If the trade falls back to breakeven, you have used $2,500 of the day’s $4,000 without a single closed loss.

This form penalises carrying open profit through the reset. If you hold trades overnight on such an account, the open profit at each reset raises that day’s floor.

A percentage of what?

Check whether the percentage applies to the initial balance or to the day’s starting value. Most firms use a fixed dollar amount based on the initial balance. A few apply the percentage to the day’s starting balance or equity, so the dollar limit grows as the account grows and shrinks after losses.

Hard and soft daily limits

In most forex and crypto programs, touching the daily limit ends the account. Many futures programs use a soft daily limit instead: positions are closed and trading stops until the next session, but the account stays open. Check which kind applies to yours.

How the two limits interact

Whichever floor is higher binds at any given moment.

Example. A static 10% maximum loss (floor $90,000) and a 5% daily limit. You start the day at $100,000, so the daily floor is $95,000. The daily floor binds, because $95,000 is above $90,000.

On a trailing account the reverse can happen. With a 6% balance-trailing limit, a highest closed balance of $104,000 puts the maximum loss floor at $98,000. If a losing day leaves you starting the next day at $101,000, a 4% daily floor sits at $97,000. The maximum loss floor binds, so your real room that day is $3,000, not $4,000.

Checks before you trade

• Write both floors down in dollars at the start of each day.
• Know whether the maximum loss is static or trailing, what it trails and when it locks.
• Know whether the daily limit is measured from balance, equity or the higher of the two, and when it resets.
• Treat losses on open positions as already taken for the purpose of your limits.
• Leave a buffer for spreads, commissions and slippage.

Drawdown rules are a large part of why most traders do not pass evaluations, and fees are usually not refunded when an account is breached. Sizing positions with the floor in mind is covered in how to pass a prop firm challenge, and our rules overview summarises the other rules that can end an account.