Drawdown Calculator

It varies significantly by strategy and instrument, but many risk-conscious traders treat drawdowns beyond 20-25% of account value as a signal to review the strategy or risk settings. Lower-frequency, longer-timeframe strategies often experience deeper but less frequent drawdowns, while high-frequency strategies tend to show shallower but more regular ones, so comparing your drawdown against a generic benchmark is less useful than understanding what's typical for your own specific approach based on backtested or logged historical results.

Not exactly drawdown specifically measures the decline from a peak account value, so it can include unrealised losses on open positions as well as realised losses from closed trades. A trader who has never closed a losing trade can still be in a meaningful drawdown if open positions are currently underwater relative to the account's prior peak. This distinction matters because tracking only realised, closed-trade losses can understate your true current risk exposure at any given moment.

Because the percentage gain needed is calculated on a smaller remaining balance losing 50% leaves you needing a 100% gain on that smaller amount just to return to the original balance. This asymmetry grows more severe the deeper the drawdown gets: a 20% loss needs a 25% gain to recover, but a 75% loss needs a 300% gain, which is why avoiding deep drawdowns in the first place matters more than any single strategy for recovering from one after it's already happened.

For FSCA-regulated brokers offering it, negative balance protection prevents your account from going below zero, effectively capping the maximum possible drawdown at 100% of deposited funds. Without this protection, extreme market gaps could theoretically push a leveraged account into negative territory, meaning a trader could owe the broker money beyond their original deposit negative balance protection removes that specific tail risk, though it doesn't prevent the milder, far more common drawdowns most traders actually experience.

Current drawdown measures the decline from your account's peak to its value right now, at this specific moment. Maximum drawdown looks back across your entire trading history, or a specific period of it, and identifies the single largest peak-to-trough decline that occurred at any point, even if the account has since recovered from it. A trader can have a small or even zero current drawdown, sitting at a new account high today, while still having experienced a much larger maximum drawdown at some earlier point in their history. Maximum drawdown is often considered the more important figure for evaluating a strategy's true risk profile, since it reveals the worst period the strategy actually endured, which current drawdown alone measured only at this instant doesn't capture.

Yes, properly measured drawdown should be based on account equity, not just closed-trade balance, which means it does include the paper losses on any currently open positions, not only losses that have been locked in by closing a trade. This distinction matters because a trader looking only at their closed-trade balance might believe their drawdown is smaller than it actually is if they're currently holding open positions that are significantly underwater. Using equity rather than balance for drawdown tracking gives a more honest, real-time picture of the account's actual risk exposure at any given moment, even though it can feel less reassuring than looking only at realised results. Most trading platforms display both figures separately as part of your account's equity curve, so it's worth checking which one you're actually looking at before drawing conclusions about your current drawdown level.

Drawdown and risk of ruin are closely connected but measure different things. Drawdown, as calculated here, describes a decline that has already happened or is happening right now it's a historical or current measurement. Risk of ruin, by contrast, is a forward-looking probability estimate of how likely a decline of a certain severity is to occur at some point in the future, given your strategy's win rate, risk-reward ratio, and risk per trade. In practice, the two work well together: drawdown tells you where you currently stand, while risk of ruin, calculated with our Risk of Ruin Calculator, tells you how likely it is that your current settings will eventually produce a drawdown of a severity you'd consider serious. Checking both together gives a more complete risk picture than either alone your current drawdown shows where you are today, while risk of ruin shows whether your ongoing settings are likely to produce a similar or worse decline again in the future.

Many experienced traders do set a predetermined drawdown threshold sometimes called a "max drawdown stop" at which they pause trading entirely to review their strategy, rather than continuing to trade through an already significant decline in the hope of recovering it through continued activity. The specific threshold varies by trader and strategy, but the underlying principle is that deciding this level in advance, while account performance is neutral, produces a far more rational decision than trying to decide it in the moment, when a trader deep in a drawdown is also often experiencing exactly the kind of psychological pressure that leads to poor decisions like increasing risk to "make it back" faster. Prop trading firms formalise this exact concept as a hard rule, discussed in more detail elsewhere on this page, which is itself a signal of how seriously professional risk management treats predetermined drawdown limits.

Proprietary trading firms typically enforce hard, non-negotiable maximum drawdown limits often expressed as a percentage of the funded account's starting balance, commonly somewhere between 5% and 12% depending on the firm and breaching this limit results in the trading account being closed immediately, regardless of the trader's overall track record or how the breach occurred. This is considerably stricter than how most personal accounts are managed, where a trader might set a personal drawdown threshold as a guideline for self-review rather than as an automatically enforced hard stop. The strictness of prop firm rules reflects their business model they're managing risk across potentially hundreds of funded traders simultaneously, and a hard, automatically enforced limit removes any ambiguity or negotiation about when a losing trader should stop. Traders transitioning from personal accounts to prop firm funding often need to tighten their personal risk management considerably to operate comfortably within these harder limits, since a risk-per-trade setting that felt conservative on a personal account can produce a drawdown that breaches a prop firm's tighter threshold surprisingly quickly during a normal losing streak.

The asymmetry comes from the fact that percentage losses and percentage gains are calculated against different base amounts a loss is calculated against the larger, original balance, while the recovery gain is calculated against the smaller, already-reduced balance. Losing 10% of R100,000 leaves R90,000, and recovering to R100,000 from there requires an 11.1% gain, not 10%, since 11.1% of R90,000 equals the R10,000 needed. This gap widens dramatically as the drawdown deepens: a 25% drawdown needs a 33.3% recovery, a 50% drawdown needs a 100% recovery, and a 75% drawdown needs a 300% recovery just to return to the original balance. Practically, this means the cost of a large drawdown isn't just the drawdown percentage itself, but the disproportionately larger recovery effort it demands afterward which is precisely why risk management approaches that prevent large drawdowns from happening in the first place tend to outperform approaches that accept large drawdowns on the assumption that a big enough subsequent win will simply undo them. A strategy that avoids ever entering a 40%+ drawdown, even if its average returns look modest by comparison to a more aggressive approach, will very often come out ahead over a long enough horizon, purely because it never has to claw back from the punishing recovery percentages that deep drawdowns demand. Understanding this asymmetry intuitively not just as an abstract mathematical fact but as a genuine driver of long-run outcomes is one of the more valuable shifts in thinking that separates risk-conscious traders from those who focus purely on average returns.

The most reliable method is to record your account equity not just closed-trade balance at a consistent interval, whether that's after every trade, at the end of each trading day, or weekly, depending on how actively you trade. From this running equity series, calculate a "running peak" column that always shows the highest equity value reached up to that point, updating it only when a new high is reached and otherwise carrying the previous peak forward. Your current drawdown at any point is then simply the percentage difference between that running peak and your current equity, and your maximum drawdown across the whole period is the largest value that current-drawdown column ever reaches. Doing this in a simple spreadsheet, rather than relying on memory or occasional spot-checks, reveals patterns that are easy to miss otherwise how often drawdowns of various sizes actually occur, how long they typically take to recover from, and whether your drawdown pattern is trending in a concerning direction over time even if any single snapshot doesn't look alarming. Many trading journal templates and platforms build this calculation in automatically, but understanding how to build it manually at least once is a useful exercise for genuinely grasping what the resulting numbers mean rather than treating them as an opaque output.

Position sizing is the primary lever that determines how severe your drawdowns become during an inevitable losing streak, since larger position sizes relative to account balance translate any given sequence of losing trades into a proportionally larger drawdown. Two traders with identical win rates and identical risk-reward ratios, but different risk-per-trade settings, will experience very different maximum drawdowns over the same sequence of trade outcomes, purely because of this sizing difference. Because drawdown recovery is mathematically asymmetric, as covered above, the trader with smaller, more conservative position sizing not only experiences a smaller drawdown during the losing streak but also faces a proportionally easier recovery afterward, compounding the advantage of conservative sizing beyond what the raw drawdown percentages alone might suggest. This is the core mechanism behind the common observation that surviving long enough to let a genuine trading edge compound over time matters more than maximising the return from any single winning period a strategy that occasionally produces excellent returns but periodically suffers severe, hard-to-recover-from drawdowns will very often underperform a more conservative approach over a long enough horizon, simply because severe drawdowns are so disproportionately costly to recover from. See What Is a Drawdown Calculator and How Is It Used? and What Is Value at Risk and Is It Relevant to Retail Traders? for related ways of framing this same underlying risk-survival relationship.

This varies by strategy and risk tolerance, but many professional risk frameworks target keeping maximum drawdown under 20-25%, drawdowns beyond this level become increasingly difficult to recover from and often signal a need to reassess the strategy.

This depends on how you calculate it, some traders track drawdown based on closed-trade equity only, others include unrealised losses on open positions too, for a fuller picture of true account risk, including open positions is generally more conservative.

Because percentage losses and gains aren't symmetric, a 50% loss requires a 100% gain just to return to the starting point, this asymmetry is exactly why controlling drawdown size matters so much for long-term account survival.

Many risk management frameworks do specify a maximum drawdown threshold that triggers a pause for strategy review, having this predetermined before you're actually in a drawdown helps remove emotional decision-making from the equation.

No, virtually every trading strategy experiences some drawdown, the goal isn't eliminating it entirely but keeping it within a range that's both survivable and doesn't undermine your psychological ability to keep executing the strategy.