A funded account's trailing drawdown moves upward as the trader's equity rises: when the high equity increases, the loss floor rises with it, unlike a static drawdown that stays fixed at the initial capital. Understanding this difference is the key to not losing your funded account at the moment you think you are most secure.
Drawdown violations are the leading cause of failure in prop firm programs. Understanding exactly how each type works, knowing the thresholds of the main prop firms, and adapting your position sizing accordingly is the prerequisite for turning a funded account into a sustainable source of income.
Types of drawdown in funded accounts
All prop firms use one form of drawdown or the other, sometimes a combination of both. The mechanics are very different in practice.
Static drawdown: definition and calculation
Static drawdown is the simplest to understand. It is fixed once and for all on the initial account capital, regardless of what the trader earns afterward.
Concrete example: on a $100,000 FTMO account (2-step challenge), the total drawdown is 10%, meaning the floor is fixed at $90,000. If the trader grows the account to $115,000 and then loses $25,000, equity falls to $90,000 and the account is closed, even though the loss from the high is $25,000 on a gain of $15,000.
FTMO 2-step rule
On the FTMO 2-step challenge, the total static drawdown is 10% of initial capital: $10,000 on a $100,000 account. The floor never moves, regardless of accumulated profit. Source: FTMO Trading Objectives.
Static drawdown favors traders who accumulate profits: your gains increase your effective safety margin. However, it does not protect you from a rapid collapse after a winning streak.
Trailing drawdown: how it follows profits
Trailing drawdown is more complex and often underestimated by traders new to prop firms. It tracks the highest equity value (or balance, depending on the firm) and rises with it. The result: your loss floor moves up every time you hit a new high.
How it works in practice:
Initial capital
Profit realized
New high
Potential violation
The trailing drawdown trap
The further you progress, the higher your floor rises. A trader who goes from $100,000 to $108,000 and then back to $96,000 violates the drawdown (floor at $97,200) even though their net gain since the start is still positive. On the FTMO 1-step challenge, the trailing drawdown is calculated on the end-of-day balance, not the intraday high.
The FTMO 1-step challenge uses an end-of-day trailing drawdown (recalculated at 00:00 CET on the closing balance). The FTMO Instant account uses an intraday trailing drawdown that recalculates with every new balance high after a position closes.
Daily drawdown vs total drawdown
Almost all prop firms impose two distinct and independent limits:
| Limit type | FTMO 2-step | FTMO 1-step | Reference |
|---|---|---|---|
| Max daily loss | 5% of initial capital | 3% of initial capital | Recalculated at 00:00 CET |
| Max total loss | 10% static | 10% trailing (end of day) | Blocking if reached |
Key rules to remember:
- The two limits are independent. Violating either one closes the account.
- The daily limit is recalculated each day at midnight (Paris time) based on the starting balance of that day.
- Hitting the daily limit on one day does not prevent you from trading the next day (the limit resets), but it eats into your total drawdown.
Drawdown rules of the main prop firms
Each prop firm has its own thresholds. Understanding them before choosing a firm is as important as reading the profit targets.
FTMO: 5% daily, 10% total (2-step)
FTMO is the reference firm with the best-documented rules. Their official rules, published on their Trading Objectives page, are:
| FTMO product | Max daily loss | Max total loss | Drawdown type |
|---|---|---|---|
| 2-step challenge | 5% of initial capital | 10% of initial capital | Static |
| 1-step challenge | 3% of initial capital | 10% of initial capital | End-of-day trailing |
| Instant account | 3% of initial capital | 10% of initial capital | Intraday trailing |
On a $100,000 2-step challenge: the daily limit is $5,000 and the absolute floor is $90,000. These two figures never move, regardless of profits.
Topstep: trailing drawdown on futures
Topstep specializes in futures (CME, CBOT) and uses a trailing drawdown based on the account balance, recalculated in real time during the session. Topstep's key distinction is that the trailing drawdown tracks the balance (not equity), meaning open positions do not impact the floor as long as they remain open.
Topstep offers Trading Combine accounts at $50,000, $100,000, and $150,000. Exact drawdown thresholds by account size are detailed on topstep.com and vary by account size.
MyFundedFutures and E8 Markets
MyFundedFutures is one of the most accessible futures firms in terms of evaluation fees. Like Topstep, it uses a trailing drawdown on futures with thresholds per account size.
E8 Markets (formerly E8 Funding) targets Forex and CFD traders. It uses a combination of a fixed daily drawdown (as a percentage of initial capital) and a static total drawdown. Detailed rules are available on e8markets.com.
Read the rules before paying
Before paying a prop firm's evaluation fee, carefully read how the total drawdown is calculated: on equity or on balance? End of day or intraday? A position left open overnight with an intraday trailing drawdown can close your account while you sleep.
How to avoid violating drawdown rules
Most violations do not happen on isolated bad trades: they happen across a series of mediocre days that accumulate, or on a single oversized trade.
Proper position sizing
The rule is simple: your maximum loss per trade should never represent more than a fraction of your daily limit. If your daily limit is $5,000 on a $100,000 account, and you accept losing 1% of capital on a single trade, you have 5 losing trades before hitting the limit.
Basic formula:
Position size (lots) = (Capital x risk % per trade) / (Stop loss in pips x pip value)
Example on a Forex pair (EUR/USD, pip value = $10 per lot):
- Capital: $100,000
- Risk per trade: 0.5% = $500
- Stop loss: 20 pips
- Size: 500 / (20 x 10) = 2.5 lots
With this sizing and a $5,000 daily limit, you can lose 10 consecutive trades before hitting the limit.
Using a trailing stop adapted to trailing drawdown
If your prop firm uses a trailing drawdown, your position management must actively account for it:
Backtesting your strategy against exact drawdown rules
The reason many traders fail after passing the challenge is straightforward: they tested their strategy on historical data without simulating the prop firm's drawdown constraints.
A standard backtest measures overall performance. A prop firm backtest measures whether, over the entire period, equity ALWAYS stayed above the floor, including intraday. These two results can be very different.
Backtrex lets you configure the exact drawdown rules of a prop firm (daily, total, trailing) directly in the backtest parameters. You can simulate the exact conditions of an FTMO, Topstep, or E8 Markets challenge on 5 to 10 years of historical data, and see which periods would have triggered a violation before spending money on an evaluation.
Explore Backtrex backtesting features or read our guide on backtesting prop firm rules for a step-by-step methodology.
Calculating position size based on drawdown
Practical formula
The maximum position size to stay within drawdown rules is calculated from the residual drawdown (what remains before a violation), not from total capital.
Residual daily risk = Daily limit - Loss already realized today
Max risk per trade = Residual daily risk x (% risk per trade / number of planned trades)
Example: daily limit of $5,000, you have already lost $1,500 today.
- Residual risk: $3,500
- If you plan 2 trades max for the day: $1,750 per trade max
- On EUR/USD with a 25-pip stop (pip = $10): 1,750 / (25 x 10) = 7 lots max
Example with a FTMO 100K account
A $100,000 FTMO account (2-step challenge) gives the following parameters:
| Parameter | Value | Calculation |
|---|---|---|
| Initial capital | $100,000 | Calculation base |
| Daily drawdown (5%) | $5,000 | 100,000 x 0.05 |
| Total drawdown (10% static) | $10,000 | Floor at $90,000 |
| Risk per trade (1%) | $1,000 | 100,000 x 0.01 |
| Max consecutive losses (day) | 5 trades at $1,000 | Without exceeding $5,000 |
| EUR/USD size at 20-pip SL | 5 lots | 1,000 / (20 x 10) |
This approach must be backtested over years of data to ensure the strategy would never have violated the limits. See our guide on funded account risk management for deeper coverage.
Before investing in an evaluation, also verify that your strategy is properly sized using the Backtrex pricing page.
Important Risk Warning
FAQ funded account drawdown
Static drawdown is fixed once and for all on the account's initial capital: if you start at $100,000 with a 10% threshold, the floor is always at $90,000, even if you reached $120,000. Trailing drawdown tracks the highest equity (or balance) reached: if you hit $110,000, your floor rises to $99,000 ($110,000 - 10%). The further you progress, the more your safety margin shrinks relative to your equity high.
The most effective rule is to cap your risk per trade to a fraction of the daily limit. If the limit is $5,000, risking $1,000 per trade gives you 5 chances before a violation. Track your consumed drawdown at the start of each day, adjust your sizes accordingly, and stop trading if you reach 50-60% of the limit to avoid defensive scalping that often makes the situation worse.
Yes. Backtrex lets you configure a prop firm's drawdown rules (daily limit, total drawdown, trailing or static type) directly in the backtest parameters. You can simulate the exact conditions of an FTMO, Topstep, or E8 Markets challenge on 5 to 10 years of historical data, and see which periods would have triggered a violation before investing in an evaluation. Learn how in our guide on backtesting prop firm rules.
Yes, for most prop firms including FTMO. The daily limit is recalculated each day at midnight (Paris time for FTMO) based on the balance at the start of that day. This means a very bad day where you consumed the entire daily limit does not prevent you from trading the next day, but it ate into your total drawdown, which does not reset.
It depends on the drawdown type and the prop firm. FTMO calculates both the daily limit and total drawdown on equity (balance plus P/L on open positions). If your intraday equity falls below the floor, the account is closed, even if your end-of-day balance would have been above it. Always verify whether the firm uses an equity-based or balance-based calculation: it is a critical difference for traders who leave positions open.
There is no universal answer: it depends on your trading style. A trader with a long hold time (swing) prefers a wide static drawdown to avoid being threatened by temporary fluctuations. A scalper prefers a tight trailing drawdown with a high daily limit. Compare firms in our article FTMO vs Topstep comparison before deciding.
On the FTMO 1-step account, after a profit withdrawal and the opening of a new account, the trailing drawdown resets to 90% of the new initial capital. On the Instant account, the trailing drawdown does not reset after a withdrawal: withdrawing profits when equity exceeds 110% of initial capital can paradoxically bring you closer to the loss limit.