Every prop firm advertises "10% drawdown" as if it means one thing. It doesn't. There are three common variants, and the difference between them is the difference between a comfortable month and a failed challenge.
The two limits you're trading against
Almost every funded account has two separate limits running at once, and breaching either one ends the account:
- A daily loss limit — how much you can lose in a single trading day.
- A maximum drawdown — how far below your high-water mark you can ever go.
People tend to watch the second and get killed by the first, usually on a day when they were already down and decided to trade back to flat.
Maximum drawdown: static vs trailing
Static drawdown
Measured from your starting balance and it never moves.
On a £100,000 account with 10% static drawdown, your floor is £90,000. Full stop. If you grow the account to £115,000, your floor is still £90,000 — you now have £25,000 of room. Static drawdown gets easier the better you do.
Trailing drawdown
Measured from the highest point your account has ever reached, and it follows you up.
Same £100,000 account, 10% trailing. Your floor starts at £90,000. You have a good week and reach £108,000 — your floor has now risen to £97,200. You are still only 10% from failing, no matter how well you have done.
This is the one that surprises people. A trader up £8,000 feels like they have a cushion. They don't. They have exactly the same cushion they started with, and they are now above their original starting balance, so a normal drawdown can fail an account that is still in profit.
The important sub-question: trailing on what?
Firms differ, and this detail matters more than the headline percentage:
- Trailing on closing balance — the high-water mark only updates when a trade closes. Kinder.
- Trailing on equity — the high-water mark updates on unrealised profit, tick by tick. Harsher, and much harsher than it sounds.
Under equity-based trailing, a trade that goes £3,000 in your favour and then comes back to breakeven has permanently raised your floor by £3,000. You closed at breakeven. Your account is unchanged. Your remaining room shrank by three grand and it never comes back.
If you let winners run and give some back, equity-based trailing will punish you for a style that is otherwise perfectly sound.
Many firms stop trailing at your starting balance
A common and genuinely useful rule: the trailing floor climbs until it reaches your initial balance, then locks there.
On that £100,000 account, once you have made about £10,000 the floor stops at £100,000 and stays. From that point you cannot lose the account without giving back every penny of profit. That is the moment a funded account gets meaningfully safer, and it is worth knowing exactly where it sits.
The daily loss limit, and the two questions nobody asks
The daily limit is usually 4–5% of the starting balance. Two details decide whether you breach it:
1. When does the day reset?
Not at your midnight. Almost always the broker's server time — commonly 5pm New York, which is 22:00 or 23:00 UK depending on the time of year. If you take a loss at 21:00 UK and another at 23:30 UK, those may be two different trading days, or the same one. That single fact changes whether you are breached.
2. Is it measured on balance or equity?
If it's measured on equity, your open positions count. You can be breached by a floating loss on a trade you fully intend to hold through, without closing anything. Traders who "wait for it to come back" get caught here constantly.
A worked example
£100,000 account · 10% trailing drawdown on equity · 5% daily loss on equity.
- Monday. Up £4,000 intraday, close at +£1,500. Balance £101,500 — but the high-water mark took the intraday peak of £104,000, so your floor is now £93,600, not £91,350.
- Tuesday. Down £3,000 by lunchtime. Daily limit is £5,000, so you have £2,000 of room left today — and you have to judge that on equity, including anything still open.
- Wednesday. You are at £98,500. Feels fine, still near starting balance. But your floor is £93,600, so your real remaining room is £4,900 — less than one daily limit.
The trader in this example has never had a bad day and is roughly flat. They are also one ordinary losing session from failing, and the account balance on their screen does not tell them that.
What to do about it
- Write down which variant you are on. Static or trailing, balance or equity, and where the trailing stops. Get it from the rules page, not from a forum.
- Track distance to the floor, not account balance. Balance is the wrong number. The number that matters is how far you are from failing.
- Know your reset time in your own timezone, and write it down. Get this wrong once and it costs the account.
- Size against remaining room, not against the starting balance. On the Wednesday above, a "normal" 1% risk is a fifth of everything left.
Why this is worth tracking properly
None of the above is complicated. It is just invisible — the platform shows you a balance, and the number that decides your fate is one you have to work out yourself, every day, from a rule set you may have skim-read once.
That is the same problem as any other leak in a trading account: it isn't that traders don't care, it's that nothing puts the number in front of them. If you already keep a journal, add a column for distance-to-floor and update it daily. It takes seconds and it changes how you size.
Exhibit A is a free trading journal built around exactly that idea — tracking the numbers that actually decide outcomes, including the trades you skipped, which most journals ignore entirely. Prop-firm rule tracking is on the roadmap.
Try it free for 14 days. No card needed to start.
Common questions
Is trailing drawdown always worse than static?
For a profitable trader, yes — static gets easier as you grow, trailing never does. The exception is a firm whose trailing stops at the initial balance, which behaves like trailing early on and static afterwards.
Does an open trade count towards my daily loss?
If the limit is measured on equity, yes. That is the single most common way traders breach a daily limit without closing a position. Check which basis your firm uses before you assume.
Does a trade that goes into profit and comes back to breakeven hurt me?
Under equity-based trailing drawdown, yes — permanently. The high-water mark took the unrealised peak, and it does not give it back when the trade closes flat.