Drawdown rules set the lowest level your account may reach before it is closed. Static drawdown keeps that floor fixed, trailing drawdown moves it up as your account grows, end-of-day trailing moves it only once a day, and relative drawdown measures it as a percentage of your highest balance. The daily loss limit is a second floor that resets every day, and how it is calculated matters as much as its size.
The two limits on every account
Almost every prop account has two loss limits: a maximum loss for the life of the account and a daily loss limit that resets each day. Touch either one and the account is closed.
- Maximum loss: usually 8-10% when static, and often lower, around 4-8%, when it trails.
- Daily loss: usually 4-5%, or about 3% on many 1-step and instant programs.
Both limits are normally checked against equity in real time, which means open losses count before you close the trade. Commissions and swaps count too.
Drawdown types at a glance
The drawdown type decides whether your floor stays where it started or follows your gains. Here is the summary before the worked examples:
| Type | Does the floor move? | When it moves | Does it stop moving? |
|---|---|---|---|
| Static | No | Never | Not needed |
| Trailing | Up only | Whenever balance or equity makes a new high | Often locks at the starting balance |
| End-of-day trailing | Up only | Once a day, at the daily close | Often locks at the starting balance |
| Relative | Up only | With each new high, as a % of the peak | Usually not |
All the examples below use a $100,000 account.
Static drawdown
Static drawdown sets a fixed floor based on your starting balance that never moves. With a 10% maximum loss, the floor is $90,000 from the first trade to the last.
| Step | Equity | Floor | Room left |
|---|---|---|---|
| Start | $100,000 | $90,000 | $10,000 |
| After a good week | $106,000 | $90,000 | $16,000 |
| After a losing streak | $97,000 | $90,000 | $7,000 |
Every profit you make adds to your room. That makes static drawdown the most forgiving type, and it is the standard in 2-step challenges.
Trailing drawdown
Trailing drawdown moves the floor up with your highest balance or equity, always the same dollar distance below it, until it usually locks at the starting balance. Here is a 6% ($6,000) trailing limit based on equity:
| Step | Equity | Highest equity | Floor | Room left |
|---|---|---|---|---|
| Start | $100,000 | $100,000 | $94,000 | $6,000 |
| Open trade reaches +$3,500 | $103,500 | $103,500 | $97,500 | $6,000 |
| Trade closes at +$1,000 | $101,000 | $103,500 | $97,500 | $3,500 |
| Account reaches $106,000 | $106,000 | $106,000 | $100,000 (locked) | $6,000 |
| Account falls to $102,000 | $102,000 | $106,000 | $100,000 | $2,000 |
The third row is the trap. You closed the trade with a $1,000 profit, but because equity touched $103,500 first, the floor rose by $3,500 and you lost $2,500 of room for good. Under trailing drawdown, open profit you give back costs you room.
Some firms trail your closed balance instead of equity, which ignores the peaks of open trades. The rules page should say which one applies.
End-of-day trailing drawdown
End-of-day (EOD) trailing drawdown moves the floor once a day based on your closing balance or equity, so peaks during the day don't raise it. The floor is still enforced in real time: if equity drops below it during the day, the account is closed.
Same 6% limit, same trade as above:
| Step | Equity | Floor |
|---|---|---|
| Start of day 1 | $100,000 | $94,000 |
| Open trade reaches +$3,500 | $103,500 | $94,000 (no change during the day) |
| Day 1 closes at $101,000 | $101,000 | $95,000 (set at the close) |
| Day 2: equity dips to $96,000 | $96,000 | $95,000, account still open |
Under the intraday trailing example above, the same dip to $96,000 would have closed the account, because the floor was already $97,500. EOD trailing is common at futures firms and in some 1-step programs, and it suits day traders who close positions before the end of the session.
Relative drawdown
Relative drawdown is measured as a percentage of your highest balance or equity, so the floor rises with the account and the dollar cushion grows as the account grows. Firms use the term in different ways, and some use it to mean ordinary trailing drawdown, so read the firm's own definition and examples.
Compare three 10% limits after the account peaks at $110,000:
| Type (10%) | Floor at start | Floor after a $110,000 peak | Room at $110,000 |
|---|---|---|---|
| Static | $90,000 | $90,000 | $20,000 |
| Trailing, fixed $10,000, locks at start | $90,000 | $100,000 | $10,000 |
| Relative, 10% of the peak | $90,000 | $99,000 | $11,000 |
Relative drawdown gives you more dollars of room as you grow, but unlike most trailing limits it usually doesn't lock.
Daily loss: balance-based vs equity-based
The daily loss limit starts from a reference point set at the daily reset, either your balance or the higher of your balance and equity, and that choice matters when you hold trades overnight. Here is a 5% ($5,000) daily limit when you carry an open trade through the reset:
- Closed balance at the reset: $100,000
- Open trade at the reset: +$3,000, so equity is $103,000
| Method | Day's reference | Daily floor | Trade later falls to -$2,000 (equity $98,000) |
|---|---|---|---|
| Balance-based | $100,000 | $95,000 | Safe, $3,000 above the floor |
| Equity-based (higher of balance or equity) | $103,000 | $98,000 | Breach |
Under the equity-based method, the $3,000 of open profit you carried into the day becomes part of what you can lose. A trade that never went below -$2,000 ends the account.
Three more details decide your real limit:
- What counts: almost always closed results plus floating profit and loss, commissions and swaps. A few firms count closed trades only.
- The base amount: many firms take the percentage of the initial account size ($5,000 on $100,000), while others use the day's starting balance or equity, so the dollar limit grows or shrinks with the account.
- Reset time: often midnight server time, which may be Central European time, or 5 pm New York time. Know the exact time at your firm.
How drawdown type changes your trading
Static drawdown rewards building a cushion early; trailing and end-of-day drawdown punish giving back open profit, so they favor taking profit sooner and managing trades tightly.
- Static: risk small at first. Once you are up, you have more room, but you don't have to use it.
- Trailing: take partial profits, move stops to break-even earlier, and don't let big winners turn into small ones.
- End-of-day trailing: close or reduce positions before the daily close if a large open profit would lift the floor.
- Equity-based daily loss: don't carry large open profit into a new day, or count it as already at risk.
For a full sizing plan built on these limits, read how to pass a prop firm challenge. To filter programs by drawdown type, use the challenges page or put firms side by side in Compare. Each of these limits ends the account on the first touch and takes the fee with it; challenges are paid products, and most traders don't pass.
FAQ
Which drawdown type is best for beginners?
Static drawdown, because the floor never moves and every profit adds room. Most 2-step challenges use it. Our list of prop firms for beginners favors programs with static drawdown.
Does trailing drawdown ever stop trailing?
At many firms, yes. The floor usually locks at the starting balance once you are up by the drawdown amount, for example after +6% on a 6% trailing account. Relative drawdown usually doesn't lock.
Do floating losses count toward the daily loss limit?
At almost all firms, yes. The limit is checked on equity in real time, so an open trade can breach it before you close it. A few firms count only closed trades, and their rules say so.
When does the daily loss limit reset?
It resets once a day at a fixed time set by the firm, often midnight server time or 5 pm New York time. Check the exact time in your firm's rules, because a loss just before the reset still counts toward the old day.
Is a 6% trailing drawdown worse than a 10% static one?
Usually, yes. A 6% trailing limit gives you less room at the start and takes room away when you give back open profit, while under a 10% static limit your room only grows as you profit. A trailing limit can still work for traders who rarely let open profit turn into a loss, which is why some 1-step programs use it.